SIMULTANEOUS CALIBRATION TO A RANGE OF PORTFOLIO CREDIT DERIVATIVES WITH A DYNAMIC DISCRETE-TIME MULTI-STEP MARKOV LOSS MODEL
This article describes a dynamic discrete-time multi-step Markov model for the losses experienced by a given credit portfolio, and develops a method for the simultaneous calibration of the model to all available relevant market prices (for CDO's, forward-start CDO's, options on CDO's,...
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| Veröffentlicht in: | International Journal of Theoretical and Applied Finance (IJTAF) 2009-08, Vol.12 (5), p.633-662 |
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| container_end_page | 662 |
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| container_issue | 5 |
| container_start_page | 633 |
| container_title | International Journal of Theoretical and Applied Finance (IJTAF) |
| container_volume | 12 |
| creator | WALKER, MICHAEL B. |
| description | This article describes a dynamic discrete-time multi-step Markov model for the losses experienced by a given credit portfolio, and develops a method for the simultaneous calibration of the model to all available relevant market prices (for CDO's, forward-start CDO's, options on CDO's, leveraged super-senior tranches with loss triggers, etc.) established on a given day. The implementation is via an efficient linear programming procedure, and examples are given. The approach represents an extension of previous work (Walker, 2005, 2006; Torresetti et al., 2006) on the static loss-surface model to a model containing the necessary underlying dynamics. |
| doi_str_mv | 10.1142/S0219024909005439 |
| format | Article |
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| identifier | ISSN: 0219-0249 |
| ispartof | International Journal of Theoretical and Applied Finance (IJTAF), 2009-08, Vol.12 (5), p.633-662 |
| issn | 0219-0249 1793-6322 1793-6322 |
| language | eng |
| recordid | cdi_proquest_miscellaneous_757457693 |
| source | World Scientific Journals (Tsinghua Mirror); RePEc; World Scientific Journals |
| subjects | Asset pricing Calibration Collateralized debt obligations Credit market Derivatives Financial engineering Financial models forward-start CDO's leveraged super-senior Tranches Linear programming Market prices Markov analysis Mathematical finance multi-step Markov model Option pricing options on CDO's Stochastic models Studies |
| title | SIMULTANEOUS CALIBRATION TO A RANGE OF PORTFOLIO CREDIT DERIVATIVES WITH A DYNAMIC DISCRETE-TIME MULTI-STEP MARKOV LOSS MODEL |
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