Multi-Scale Time-Changed Birth Processes for Pricing Multi-Name Credit Derivatives
23 Pages Posted: 24 Feb 2014
Date Written: February 1, 2009
Abstract
We develop two parsimonious models for pricing multi-name credit derivatives. We derive closed form expression for the loss distribution, which then can be used in determining the prices of tranche and index swaps and more exotic derivatives on these contracts. Our starting point is the model of [3], which takes the loss process as a time changed birth process. We introduce stochastic parameter variations into the intensity of the loss process and use the multi-time scale approach of [6] and obtain explicit perturbation approximations to the loss distribution. We demonstrate the competence of our approach by calibrating it to the CDX index data.
Keywords: Pricing multiname credit derivatives, pertubation approximation, multiple time scales, time changed birth processes, index/tranche swap, calibration
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
A Top-Down Approach to Multi-Name Credit
By Kay Giesecke, Lisa R. Goldberg, ...
-
Calibration of CDO Tranches with the Dynamical Generalized-Poisson Loss Model
By Damiano Brigo, Andrea Pallavicini, ...
-
Time-Changed Birth Processes and Multi-Name Credit Derivatives
By Kay Giesecke, Xiaowei Ding, ...
-
Affine Point Processes and Portfolio Credit Risk
By Eymen Errais, Kay Giesecke, ...
-
Semi-Analytical Valuation of Basket Credit Derivatives in Intensity-Based Models
-
Risk Neutral Versus Objective Loss Distribution and CDO Tranches Valuation
By Roberto Torresetti, Damiano Brigo, ...
-
Estimating Tranche Spreads by Loss Process Simulation
By Baeho Kim and Kay Giesecke
-
Implied Expected Tranched Loss Surface from CDO Data
By Roberto Torresetti, Damiano Brigo, ...
-
Multiscale Intensity Models and Name Grouping for Valuation of Multi-Name Credit Derivatives
By Evan Papageorgiou and Ronnie Sircar