Balakrishna, B S (2006): A Semi-Analytical Parametric Model for Dependent Defaults.
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A semi-analytical parametric approach to modeling default dependency is presented. It is a multi-factor model based on instantaneous default correlation that also takes into account higher order default correlations. It is capable of accommodating a term structure of default correlations and has a dynamic formulation in the form of a continuous time Markov chain. With two factors and a constant hazard rate, it provides perfect fits to four tranches of CDX.NA.IG and iTraxx Europe CDOs of 5, 7 and 10 year maturities. With time dependent hazard rates, it provides perfect fits to all the five tranches for all three maturities.
|Item Type:||MPRA Paper|
|Original Title:||A Semi-Analytical Parametric Model for Dependent Defaults|
|Keywords:||Default Risk; Default Correlation; CDO; Markov Chain; Semi-analytical; Parametric|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing|
|Depositing User:||S Balakrishna|
|Date Deposited:||30. Apr 2009 00:28|
|Last Modified:||20. Feb 2013 19:43|
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