Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/40330
Authors: 
Hager, Svenja
Schöbel, Rainer
Year of Publication: 
2005
Series/Report no.: 
Tübinger Diskussionsbeitrag 297
Abstract: 
The correct modeling of default dependence is essential for the valuation of multiname credit derivatives. However for the pricing of synthetic CDOs a one-factor Gaussian copula model with constant and equal pairwise correlations, default intensities and recovery rates for all assets in the reference portfolio has become the standard market model. If this model were a reflection of market opinion there wouldn't be the implied correlation smile that is observed in the market. The purpose of this paper is to explain the structure of the smile by discussing the influence of different correlation matrices on CDO spreads.
Subjects: 
default risk
CDOs
implied correlation smile
correlation matrx
heterogeneity
JEL: 
G13
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.