IDEAS home Printed from https://ideas.repec.org/p/hal/journl/halshs-00179325.html
   My bibliography  Save this paper

Hedging tranches index products : illustration of model dependency

Author

Listed:
  • Dominique Guegan

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Julien Houdain

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, index tranches'properties and several hedging strategies are discussed. Model risk and correlation risk are analysed through the study of the efficiency of several factor based copula models, like the Gaussian, the double-t and the double NIG using implied correlation and a particular NIG one factor model, using historical data in terms of hedging capabilities.

Suggested Citation

  • Dominique Guegan & Julien Houdain, 2006. "Hedging tranches index products : illustration of model dependency," Post-Print halshs-00179325, HAL.
    • Handle: RePEc:hal:journl:halshs-00179325
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00179325
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-00179325/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert A. Jarrow & David Lando & Stuart M. Turnbull, 2008. "A Markov Model for the Term Structure of Credit Risk Spreads," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 18, pages 411-453, World Scientific Publishing Co. Pte. Ltd..
    2. Duffie, Darrell & Singleton, Kenneth J, 1997. "An Econometric Model of the Term Structure of Interest-Rate Swap Yields," Journal of Finance, American Finance Association, vol. 52(4), pages 1287-1321, September.
    3. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409, World Scientific Publishing Co. Pte. Ltd..
    4. Lars Forsberg & Tim Bollerslev, 2002. "Bridging the gap between the distribution of realized (ECU) volatility and ARCH modelling (of the Euro): the GARCH-NIG model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(5), pages 535-548.
    5. Lillestøl, Jostein, 2000. "Bayesian estimation of NIG-parameters by Markov Chain Monte Carlo Methods," SFB 373 Discussion Papers 2000,112, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    6. Lillestöl, Jostein, 2002. "Some crude approximation, calibration and estimation procedures for NIG-variates," SFB 373 Discussion Papers 2002,85, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    7. Morten B. Jensen & Asger Lunde, 2001. "The NIG-S&ARCH model: a fat-tailed, stochastic, and autoregressive conditional heteroskedastic volatility model," Econometrics Journal, Royal Economic Society, vol. 4(2), pages 1-10.
    8. Jeffery D Amato & Jacob Gyntelberg, 2005. "CDS index tranches and the pricing of credit risk correlations," BIS Quarterly Review, Bank for International Settlements, March.
    9. Duffie, Darrell & Huang, Ming, 1996. "Swap Rates and Credit Quality," Journal of Finance, American Finance Association, vol. 51(3), pages 921-949, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Samuel Chege Maina, 2011. "Credit Risk Modelling in Markovian HJM Term Structure Class of Models with Stochastic Volatility," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2011.
    3. Christina Nikitopoulos-Sklibosios, 2005. "A Class of Markovian Models for the Term Structure of Interest Rates Under Jump-Diffusions," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 6, July-Dece.
    4. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    5. Lekkos, Ilias, 2007. "Modelling multiple term structures of defaultable bonds with common and idiosyncratic state variables," Journal of Empirical Finance, Elsevier, vol. 14(5), pages 783-817, December.
    6. repec:wyi:journl:002109 is not listed on IDEAS
    7. Samuel Chege Maina, 2011. "Credit Risk Modelling in Markovian HJM Term Structure Class of Models with Stochastic Volatility," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 5, July-Dece.
    8. Jarrow, Robert A. & Turnbull, Stuart M., 2000. "The intersection of market and credit risk," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 271-299, January.
    9. Colino, Jesús P. & Stute, Winfried, 2008. "Credit risk with semimartingales and risk-neutrality," DES - Working Papers. Statistics and Econometrics. WS ws085417, Universidad Carlos III de Madrid. Departamento de Estadística.
    10. Christina Nikitopoulos-Sklibosios, 2005. "A Class of Markovian Models for the Term Structure of Interest Rates Under Jump-Diffusions," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2005.
    11. Chava, Sudheer & Jarrow, Robert, 2008. "Modeling loan commitments," Finance Research Letters, Elsevier, vol. 5(1), pages 11-20, March.
    12. Augusto Castillo, 2004. "Firm and Corporate Bond Valuation: A Simulation Dynamic Programming Approach," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(124), pages 345-360.
    13. Giesecke, Kay & Longstaff, Francis A. & Schaefer, Stephen & Strebulaev, Ilya, 2011. "Corporate bond default risk: A 150-year perspective," Journal of Financial Economics, Elsevier, vol. 102(2), pages 233-250.
    14. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    15. Duffie, Darrell, 2005. "Credit risk modeling with affine processes," Journal of Banking & Finance, Elsevier, vol. 29(11), pages 2751-2802, November.
    16. Gurdip Bakshi & Dilip B. Madan & Frank X. Zhang, 2001. "Investigating the sources of default risk: lessons from empirically evaluating credit risk models," Finance and Economics Discussion Series 2001-15, Board of Governors of the Federal Reserve System (U.S.).
    17. Dragon Tang & Hong Yan, 2006. "Macroeconomic Conditions, Firm Characteristics, and Credit Spreads," Journal of Financial Services Research, Springer;Western Finance Association, vol. 29(3), pages 177-210, June.
    18. Carl Chiarella & Samuel Chege Maina & Christina Nikitopoulos-Sklibosios, 2010. "Markovian Defaultable HJM Term Structure Models with Unspanned Stochastic Volatility," Research Paper Series 283, Quantitative Finance Research Centre, University of Technology, Sydney.
    19. Duffie, Darrell, 2003. "Intertemporal asset pricing theory," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 11, pages 639-742, Elsevier.
    20. Hubner, Georges, 2001. "The analytic pricing of asymmetric defaultable swaps," Journal of Banking & Finance, Elsevier, vol. 25(2), pages 295-316, February.
    21. Dai, Qiang & Singleton, Kenneth J., 2003. "Fixed-income pricing," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 20, pages 1207-1246, Elsevier.

    More about this item

    Keywords

    CDO; Factor models; NIG distribution;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00179325. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.