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Modelling correlation skew via mixing copulae and uncertain loss at default (Venue: Centre for Mathematical Sciences)

Saturday 26th February 2005 - 08:30 to 09:30
No Room Required

We discuss aspects of the correlation skew in portfolio credit derivatives, in particular the relationship between implied and base correlation for tranches. We present a model which generates correlation skews by mixing copulae and introducing stochastic loss given default variables. This allows us to present a whole range of arbitrage-free base correlation curves.

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