Price calibration and hedging of correlation dependent credit derivatives using a structural model with α-stable distributions

Autor:	Svetlozar T. Rachev, Markus Höchstötter, Frank J. Fabozzi, Jochen Papenbrock
Rok vydání:	2009
Předmět:	Credit default swap index Economics and Econometrics Credit default swap iTraxx Financial economics Collateralized debt obligation Econometrics Economics Credit derivative Credit valuation adjustment Finance Market liquidity Credit risk
Zdroj:	Applied Financial Economics. 19:1401-1416
ISSN:	1466-4305 0960-3107
Popis:	The emergence of Credit Default Swap (CDS) indices and corresponding credit risk transfer markets with high liquidity and narrow bid–ask spreads has created standard benchmarks for market credit risk and correlation against which portfolio credit risk models can be calibrated. Integrated risk management for correlation dependent credit derivatives, such as single-tranches of synthetic Collateralized Debt Obligations (CDOs), requires an approach that adequately reflects the joint default behaviour in the underlying credit portfolios. Another important feature for such applications is a flexible model architecture that incorporates the dynamic evolution of underlying credit spreads. In this article, we present a model that can be calibrated to quotes of CDS index-tranches in a statistically sound way and simultaneously has a dynamic architecture to provide for the joint evolution of distance-to-default measures. This is accomplished by replacing the normal distribution by Smoothly Truncated α-Stable (STS) d...
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::46d1be3e4f3cb2078905ec93aefd97e0 https://doi.org/10.1080/09603100902798040 Zobrazit plný text záznamu Plný text ve formátu PDF Plný text ve formátu HTML
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