Main Menu
Option Calculator
Discussion Series
Frankfurt MathFinance Colloquium
Dr. Erik Schlögl
Sydney University of Technology
Spoken and Implied: Factor Distributions Implied by Quoted CDO Spreads and the Pricing of Bespoke Tranches
Abstract
The rapid pace of innovation in the market for credit risk has given rise to a liquid market in synthetic collateralised debt obligation (CDO) tranches on standardised portfolios. To the extent that tranche spreads depend on default dependence between different obligors in the reference portfolio, quoted spreads can be seen as aggregating the market views on this dependence. Already, practitioners are increasingly talking about implied correlation "smiles" and "skews" in a manner reminiscent of the volatility smiles found in liquid option markets. We explore how this analogy can be taken a step further to extract implied factor distributions from the market quotes for synthetic CDO tranches.Thursday September 22 2005 6:00 p.m., HfB Room TBA
new instance of MathFinance
