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We compare some popular CDO pricing models, related to the bottom‐up approach. Dependence between default times is modelled through Gaussian, stochastic correlation, Student t, double t, Clayton and Marshall‐Olkin copulas. We detail the model properties and compare the semi‐analytic pricing approach with large portfolio approximation techniques. We study(More)
Il s'agit d'une version concise de l'article " hedging default risks of CDOs in Markovian contation models " (2008) auquel nous renvoyons pour plus de dtails. Nous mettons enévidence une stratégie de duplication de tranches de CDO faisant appel au contrat de swap de défaut sur l'indice sous-jacent. La perte agrégée suit une chaˆıne de Markov. L'intensité de(More)
Introduction The modelling of dependence between defaults is a key issue for the valuation and risk management of multi-name credit derivatives. The Gaussian copula model seems to have become an industry standard for pricing. It's appeal is partly due to its ease of implementation via Monte Carlo simulation and the fact that the underlying dependence(More)
We discuss problems with interpolating and extrapolating base correlation curves and examine the pricing of CDO tranches with non-standard subordination levels. We introduce an alternative risk measure, the expected loss of equity tranches. We calculate upper and lower boundaries on " base EL " , and set out the behaviours that base EL must obey. We(More)
We have developed a new family of Archimedean copula processes for modeling the dynamic dependence between default times in a large portfolio of names and for pricing synthetic CDO tranches. After presenting their general properties, we show that there is a class of processes where default is not predictable. Then we study a new Clayton copula process in(More)
Many of the Research Reports are of an interim nature and serve to make available the results of specialist investigations in advance of full publication. They are not usually subject to external refereeing, and their conclusions may sometimes have to be modified in the light of information not available at the time of the investigation. Where no final(More)
Counterparty risk has been at the heart of the recent crisis driven by the toxicity of over-the-counter (OTC) derivatives and failure of high profile financial institutions. This has led policymakers to propose laws that would require most standard OTC derivatives to be centrally cleared. Central clearing involves a central counterparty (CCP) intermediating(More)