Discrete tenor models for credit risky portfolios driven by time-inhomogeneous L\'evy processes
The goal of this paper is to specify dynamic term structure models with discrete tenor structure for credit portfolios in a top-down setting driven by time-inhomogeneous L\'evy processes. We provide a new framework, conditions for absence of arbitrage, explicit examples, an affine setup which includes contagion and pricing formulas for STCDOs and options on STCDOs. A calibration to iTraxx data with an extended Kalman filter shows an excellent fit over the full observation period. The calibration is done on a set of CDO tranche spreads ranging across six tranches and three maturities.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Philippe Ehlers & Philipp Schönbucher, 2009.
"Background filtrations and canonical loss processes for top-down models of portfolio credit risk,"
Finance and Stochastics,
Springer, vol. 13(1), pages 79-103, January.
- Philippe Ehlers & Philipp J. Schoenbucher, 2006. "Background Filtrations andCanonical Loss Processes for Top-Down Models of Portfolio Credit Risk," Swiss Finance Institute Research Paper Series 07-07, Swiss Finance Institute.
- Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1006.2012. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.