JOINT DISTRIBUTIONS OF PORTFOLIO LOSSES AND EXOTIC PORTFOLIO PRODUCTS

Friedel Epple, Sam Morgan and Lutz Schloegl
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Friedel Epple: Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom
Sam Morgan: Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom
Lutz Schloegl: Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom

Chapter 7 in Credit Correlation:Life After Copulas, 2007, pp 141-156 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThe pricing of exotic portfolio products, e.g. path-dependent CDO tranches, relies on the joint probability distribution of portfolio losses at different time horizons. We discuss a range of methods to construct the joint distribution in a way that is consistent with market prices of vanilla CDO tranches. As an example, we show how our loss-linking methods provide estimates for the breakeven spreads of forward-starting tranches.

Keywords: Credit Derivatives; Gaussian Copulas; Tranches; Credit Baskets; Base Correlations (search for similar items in EconPapers)
Date: 2007
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