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Matching base correlation skew with a naturally time-homogeneous model

Friday 25th February 2005 - 14:30 to 15:30
INI Seminar Room 1

We introduce a new financially motivated model for pricing portfolio credit derivatives. It naturally matches the base correlation skew whilst achieving time-homogeneity; two features lacking in the market-standard Gaussian copula model. The model is easily calibrated and allows effective pricing of exotic credit derivatives such as CDO-squareds.

University of Cambridge Research Councils UK
    Clay Mathematics Institute London Mathematical Society NM Rothschild and Sons