Technical paper
Intensity gamma
Mark Joshi and Alan Stacey develop a new model for correlation of credit defaults based on a financially intuitive concept of business time similar to that in the variance gamma model for stock price evolution
Beyond Black-Litterman in practice
In principle, the copula-opinion pooling (COP) approach extends the Black-Litterman methodology to non-normally distributed markets and views. However, the implementations of the COP framework presented so far rely on restrictive quasi-normal assumptions…
Modelling and estimating dependent loss given default
Martin Hillebrand proposes a portfolio credit risk model with dependent loss given default (LGD), offering a reasonable economic interpretation that is easily applicable to real data. He builds a precise mathematical framework, and stresses some…
Forward thinking for backwardation
In certain settings it's reasonable to assume that the current futures price embodies the market expectations of the spot price. However, as Gary Dorris, Sean Burrows and Vena Kostroun explain, there are distinct situations when this assumption does not…
Strategie di trading sulla pendenza
DERIVATI CREDITIZI
Smiling at convexity
The price of a constant maturity swap (CMS)-based derivative is largely determined by the value of swaption volatilities at extreme strikes. Fabio Mercurio and Andrea Pallavicini propose a simple procedure for stripping consistently implied volatilities…
Cracking VAR with kernels
Value-at-risk analysis has become a key measure of portfolio risk in recent years, but how can we calculate the contribution of some portfolio component? Eduardo Epperlein and Alan Smillie show how kernel estimators can be used to provide a fast,…
Low-default portfolios without simulation
Low-default portfolios are a key Basel II implementation challenge, and various statistical techniques have been proposed for use in PD estimation for such portfolios. To produce estimates using these techniques, typically Monte Carlo simulation is…