Balakrishna, B S
(2006):
*A Semi-Analytical Parametric Model for Dependent Defaults.*

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## Abstract

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 |
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Original Title: | A Semi-Analytical Parametric Model for Dependent Defaults |

Language: | English |

Keywords: | Default Risk; Default Correlation; CDO; Markov Chain; Semi-analytical; Parametric |

Subjects: | G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing |

Item ID: | 14918 |

Depositing User: | S Balakrishna |

Date Deposited: | 30 Apr 2009 00:28 |

Last Modified: | 27 Sep 2019 16:30 |

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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/14918 |