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Joint Distributions Of Portfolio Losses And Exotic Portfolio Products

In: Credit Correlation Life After Copulas

Author

Listed:
  • FRIEDEL EPPLE

    (Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom)

  • SAM MORGAN

    (Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom)

  • LUTZ SCHLOEGL

    (Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom)

Abstract

The pricing of exotic portfolio products, e.g. path-dependent CDO tranches, relies on the joint probability distribution of portfolio losses at different time horizons. We discuss a range of methods to construct the joint distribution in a way that is consistent with market prices of vanilla CDO tranches. As an example, we show how our loss-linking methods provide estimates for the breakeven spreads of forward-starting tranches.

Suggested Citation

  • Friedel Epple & Sam Morgan & Lutz Schloegl, 2007. "Joint Distributions Of Portfolio Losses And Exotic Portfolio Products," World Scientific Book Chapters, in: Alexander Lipton & Andrew Rennie (ed.), Credit Correlation Life After Copulas, chapter 7, pages 141-156, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812709509_0007
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    Cited by:

    1. Areski Cousin & Diana Dorobantu & Didier Rullière, 2013. "An extension of Davis and Lo's contagion model," Quantitative Finance, Taylor & Francis Journals, vol. 13(3), pages 407-420, February.

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