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Probability of Default as a Function of Correlation: The Problem of Non-uniqueness
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| dc.contributor.author | Daglish, Toby | |
| dc.contributor.author | Li, Wei | |
| dc.date.accessioned | 2015-02-11T21:39:12Z | |
| dc.date.accessioned | 2022-07-07T02:06:43Z | |
| dc.date.available | 2015-02-11T21:39:12Z | |
| dc.date.available | 2022-07-07T02:06:43Z | |
| dc.date.copyright | 1/06/2008 | |
| dc.date.issued | 2008 | |
| dc.identifier.uri | https://ir.wgtn.ac.nz/handle/123456789/19109 | |
| dc.description.abstract | It is common practise in industry for traders to use copula models combined with observed market prices to calculate implied correlations for firm defaults. The actual feasibility of this calculation depends on the assumption that there is a one-to-one mapping between values of CDO tranches and the correlation implicit in the copula. This paper presents several proofs which demonstrate that for sufficiently large portfolios of underlying credits the probability of certain number of default are hump shaped as a function of the correlation. We follow our analytical results with some numerical examples of pricing CDOs demonstrating the non-uniqueness problem of implied correlations. | en_NZ |
| dc.format | en_NZ | |
| dc.language.iso | en_NZ | |
| dc.publisher | Te Herenga Waka—Victoria University of Wellington | en_NZ |
| dc.rights | Permission to publish research outputs of the New Zealand Institute for the Study of Competition and Regulation has been granted to the Victoria University of Wellington Library. Refer to the permission letter in record: https://ir.wgtn.ac.nz/handle/123456789/18870 | en_NZ |
| dc.title | Probability of Default as a Function of Correlation: The Problem of Non-uniqueness | en_NZ |
| dc.type | Text | en_NZ |
| vuwschema.contributor.unit | New Zealand Institute for the Study of Competition and Regulation | en_NZ |
| vuwschema.contributor.unit | Victoria Business School: Orauariki | en_NZ |
| vuwschema.subject.anzsrcfor | 149999 Economics not elsewhere classified | en_NZ |
| vuwschema.type.vuw | Working or Occasional Paper | en_NZ |
| vuwschema.subject.anzsrcforV2 | 389999 Other economics not elsewhere classified | en_NZ |
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The New Zealand Institute for the Study of Competition and Regulation · ISCR
Papers from the ISCR