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Special Semester on Stochastics with Emphasis on Finance
Linz, September 2008 - December 2008
Presentation: Multiname and Multiscale Default Modeling

Workshop: Kick-off-Workshop

Time: Wed, September 10, 2008, 09:30-10:20

Speaker: Jean-Pierre Fouque

Abstract

Multiname default modeling is crucial in the context of pricing credit derivatives such as Collaterized Debt Obligations (CDOs).
We consider here a simple reduced form approach for multiname defaults based on the Vasicek or Ornstein-Uhlenbeck model for the hazard rates of the underlying names. We analyze the impact of volatility time scales on the default distribution and CDO prices. We demonstrate how correlated fluctuations in the parameters of the name hazard rates affect the loss distribution and senior tranches of CDOs.
Joint work with Knut Solna (UC Irvine) and Ronnie Sircar (Princeton).

Presentation slides (pdf, 194 KB)

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