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Stochastic Intensity Modeling For Structured Credit Exotics

In: Credit Correlation Life After Copulas

Author

Listed:
  • ALEXANDER CHAPOVSKY

    (Merrill Lynch International, 2 King Edward Street, London EC1A 1HQ, United Kingdom)

  • ANDREW RENNIE

    (Merrill Lynch International, 2 King Edward Street, London EC1A 1HQ, United Kingdom)

  • PEDRO TAVARES

    (Merrill Lynch International, 2 King Edward Street, London EC1A 1HQ, United Kingdom)

Abstract

We propose a class of credit models where we model default intensity as a jump-diffusion stochastic process. We demonstrate how this class of models can be specialised to value multi-asset derivatives such as CDO and CDO2 in an efficient way. We also suggest how it can be adapted to the pricing of option on tranche and leverage tranche deals. We discuss how the model performs when calibrated to the market.

Suggested Citation

  • Alexander Chapovsky & Andrew Rennie & Pedro Tavares, 2007. "Stochastic Intensity Modeling For Structured Credit Exotics," World Scientific Book Chapters, in: Alexander Lipton & Andrew Rennie (ed.), Credit Correlation Life After Copulas, chapter 3, pages 41-60, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812709509_0003
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    Cited by:

    1. Balakrishna, B S, 2010. "Levy Subordinator Model of Default Dependency," MPRA Paper 21386, University Library of Munich, Germany.
    2. Balakrishna, B S, 2010. "Levy Subordinator Model: A Two Parameter Model of Default Dependency," MPRA Paper 26274, University Library of Munich, Germany.

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