Portfolio credit derivatives and introduction to structured credit trading

2012 ◽  
pp. 157-165 ◽  
Keyword(s):  
Credit Derivatives ◽  
Structured Credit ◽  
Portfolio Credit Derivatives

SIMULTANEOUS CALIBRATION TO A RANGE OF PORTFOLIO CREDIT DERIVATIVES WITH A DYNAMIC DISCRETE-TIME MULTI-STEP MARKOV LOSS MODEL

2009 ◽  
Vol 12 (05) ◽  
pp. 633-662 ◽  
Author(s):  
MICHAEL B. WALKER
Keyword(s):  
Linear Programming ◽  
Markov Model ◽  
Discrete Time ◽  
Credit Derivatives ◽  
Surface Model ◽  
Relevant Market ◽  
Market Prices ◽  
Credit Portfolio ◽  
Portfolio Credit Derivatives ◽  
Static Loss

This article describes a dynamic discrete-time multi-step Markov model for the losses experienced by a given credit portfolio, and develops a method for the simultaneous calibration of the model to all available relevant market prices (for CDO's, forward-start CDO's, options on CDO's, leveraged super-senior tranches with loss triggers, etc.) established on a given day. The implementation is via an efficient linear programming procedure, and examples are given. The approach represents an extension of previous work (Walker, 2005, 2006; Torresetti et al., 2006) on the static loss-surface model to a model containing the necessary underlying dynamics.

PRICING AND HEDGING OF PORTFOLIO CREDIT DERIVATIVES WITH INTERACTING DEFAULT INTENSITIES

2008 ◽  
Vol 11 (06) ◽  
pp. 611-634 ◽  
Author(s):  
RÜDIGER FREY ◽  
JOCHEN BACKHAUS
Keyword(s):  
Markov Process ◽  
Credit Risk ◽  
Credit Derivatives ◽  
Reduced Form ◽  
Counterparty Risk ◽  
Market Data ◽  
Portfolio Credit Risk ◽  
Default State ◽  
Default Contagion ◽  
Portfolio Credit Derivatives

We consider reduced-form models for portfolio credit risk with interacting default intensities. In this class of models default intensities are modeled as functions of time and of the default state of the entire portfolio, so that phenomena such as default contagion or counterparty risk can be modeled explicitly. In the present paper this class of models is analyzed by Markov process techniques. We study in detail the pricing and the hedging of portfolio-related credit derivatives such as basket default swaps and collaterized debt obligations (CDOs) and discuss the calibration to market data.

Sign in / Sign up

Export Citation Format

Share Document