Technical paper

Geometric mean variance

It is argued that a constrained mean variance framework is superior to Black-Litterman asset allocation, and can help an investor determine the mean excess return vector given their market views

Market-implied Archimedean copulas

Computations of implied copulas are a central element in producing loss distributions of bespoke portfolios and pricing their tranches. This process is made feasible by the availability of index tranche pricing data. Luigi Vacca shows how it is possible…

Confidence intervals for corporate default rates

Rating agency default studies provide estimates of mean default rates over multiple time horizons but have never included estimates of the standard errors of the estimates. This is due at least in part to the challenge of accounting for the high degree…

The determinants of corporate credit spreads

Credit default swaps (CDSs) are an integral tool used for the management of credit risk by financial institutions. Despite their importance, good models for the determination of CDS spreads, also called corporate credit spreads, are not readily available…

Factor models for credit correlation

Stewart Inglis and Alex Lipton describe dynamic and static factor models for credit correlation, and show how the static model can be calibrated to the market and used for the pricing of standard and bespoke tranches, including tranchelets

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