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CDS index tranches and the pricing of credit risk correlations


  • Jeffery D Amato
  • Jacob Gyntelberg


Standardised loss tranches based on credit default swap (CDS) indices have increased liquidity in the market for credit risk correlations. Although progress is being made, quantitative modelling of these correlations is complex and not yet fully developed.

Suggested Citation

  • Jeffery D Amato & Jacob Gyntelberg, 2005. "CDS index tranches and the pricing of credit risk correlations," BIS Quarterly Review, Bank for International Settlements, March.
  • Handle: RePEc:bis:bisqtr:0503g

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    References listed on IDEAS

    1. M. Davis & V. Lo, 2001. "Infectious defaults," Quantitative Finance, Taylor & Francis Journals, vol. 1(4), pages 382-387.
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    Cited by:

    1. Guonan Ma & Eli Remolona, 2009. "Learning by Doing in Market Reform: Lessons from a Regional Bond Fund," Chapters,in: Towards Monetary and Financial Integration in East Asia, chapter 4 Edward Elgar Publishing.
    2. Jacob Gyntelberg & Guonan Ma & Eli M Remolona, 2005. "Corporate bond markets in Asia," BIS Quarterly Review, Bank for International Settlements, December.
    3. I. Onur Filiz & Xin Guo & Jason Morton & Bernd Sturmfels, 2008. "Graphical models for correlated defaults," Papers 0809.1393,
    4. Michael Chiu, 2012. "Derivatives markets, products and participants: an overview," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Proceedings of the workshop "Data requirements for monitoring derivative transactions", organised by the People's Bank of China and the Irving Fisher , volume 35, pages 3-11 Bank for International Settlements.
    5. Calice, Giovanni, 2011. "The Impact of Collateral Policies on Sovereign CDS Spreads," ECMI Papers 12234, Centre for European Policy Studies.
    6. Claudio, Ferrarese, 2006. "A comparative analysis of correlation skew modeling techniques for CDO index tranches," MPRA Paper 1668, University Library of Munich, Germany.
    7. Claudio Borio, 2007. "Change and Constancy in the Financial System: Implications for Financial Distress and Policy," RBA Annual Conference Volume,in: Christopher Kent & Jeremy Lawson (ed.), The Structure and Resilience of the Financial System Reserve Bank of Australia.
    8. Ingo Fender & Janet Mitchell, 2005. "Structured finance: complexity, risk and the use of ratings," BIS Quarterly Review, Bank for International Settlements.
    9. Guonan Ma & Eli M Remolona, 2005. "Opening markets through a regional bond fund: lessons from ABF2," BIS Quarterly Review, Bank for International Settlements, June.
    10. Barbara Choroś-Tomczyk & Wolfgang Karl Härdle & Ludger Overbeck, 2014. "Copula dynamics in CDOs," Quantitative Finance, Taylor & Francis Journals, vol. 14(9), pages 1573-1585, September.
    11. Yinqiu Lu & Jorge A Chan-Lau, 2006. "Idiosyncratic and Systemic Risk in the European Corporate Sector; A CDO Perspective," IMF Working Papers 06/107, International Monetary Fund.
    12. Abel Elizalde, 2006. "CREDIT RISK MODELS IV: UNDERSTANDING AND PRICING CDOs," Working Papers wp2006_0608, CEMFI.
    13. Petra Buzková & Petr Teplý, 2012. "Collateralized Debt Obligations´ Valuation Using the One Factor Gaussian Copula Model," Prague Economic Papers, University of Economics, Prague, vol. 2012(1), pages 30-49.
    14. Claudio E. V. Borio & Kostas Tsatsaronis, 2005. "Accounting, prudential regulation and financial stability: elements of a synthesis," BIS Working Papers 180, Bank for International Settlements.
    15. Zhu, Haibin & Tarashev, Nikola A., 2008. "The pricing of correlated default risk: evidence from the credit derivatives market," Discussion Paper Series 2: Banking and Financial Studies 2008,09, Deutsche Bundesbank.
    16. Jeffery D Amato, 2005. "Risk aversion and risk premia in the CDS market," BIS Quarterly Review, Bank for International Settlements, December.
    17. Franck Packer & Haibin Zhu, 2005. "Contractual terms and CDS pricing," BIS Quarterly Review, Bank for International Settlements, March.
    18. Murphy, David & Nahai-Williamson, Paul, 2014. "Financial Stability Paper 30: Dear Prudence, won’t you come out to play? Approaches to the analysis of CCP default fund adequacy," Bank of England Financial Stability Papers 30, Bank of England.
    19. Tao Peng, 2010. "Portfolio Credit Risk Modelling and CDO Pricing - Analytics and Implied Trees from CDO Tranches," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 8.
    20. Choroś-Tomczyk, Barbara & Härdle, Wolfgang Karl & Okhrin, Ostap, 2013. "Valuation of collateralized debt obligations with hierarchical Archimedean copulae," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 42-62.
    21. Dominique Guegan & Julien Houdain, 2006. "Hedging tranches index products : illustration of model dependency," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00179325, HAL.
    22. Dermine, Jean, 2015. "Basel III leverage ratio requirement and the probability of bank runs," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 266-277.
    23. François-Louis Michaud, 2005. "Gestion d'actifs et dérivés de crédit : opportunités et incertitudes," Revue d'Économie Financière, Programme National Persée, vol. 79(2), pages 79-93.
    24. Wang, Dezhong & Rachev, Svetlozar T. & Fabozzi, Frank J., 2009. "Pricing of credit default index swap tranches with one-factor heavy-tailed copula models," Journal of Empirical Finance, Elsevier, vol. 16(2), pages 201-215, March.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading


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