News & Events

Event Details

Homogeneous Groups and Multiscale Intensity Models for Multiname Credit Derivatives

  • Event Date: February 26, 2008
  • Event End Date: February 26, 2008
  • Event Start Time: 2:00 PM
  • Event End Time: 3:00 PM
  • Event Location: Hill 525
  • Event Type: Mathematical Finance and Probability Seminars
  • Extra Info: Speaker: Ronnie Sircar, Princeton University
The pricing of basket credit derivatives is contingent upon

  1. realistic modeling of the firms' default times and the correlation between them; and
  2. efficient computational methods for computing the portfolio loss distribution from the firms' marginal default time distributions.
We revisit intensity-based models and, with the aforementioned issues in mind, we propose improvements
  1. via incorporating fast mean-reverting stochastic volatility in the default intensity processes; and
  2. by considering a hybrid of a top-down and a bottom-up model with homogeneous groups within the original set of firms.

We present a calibration example from CDO data, and discuss the relative performance of the approach. This is joint work with Evan Papageorgiou. ( Slides)

Speaker: Ronnie Sircar, Princeton University