After a brief review of the literature on rating arbitrage for corporate and structured nance, we introduce the standard criteria adopted by rating agencies to assess riskiness of Constant Proportion Debt Obligations (CPDO). Then, we propose a new rating model in order to incorporate a more...

We extend the common Poisson shock framework reviewed for example in Lindskog and McNeil [15] to a formulation avoiding repeated defaults, thus obtaining a model that can account consistently for single name default dynamics, cluster default dynamics and default counting process. This approach...

After a brief review of the literature on rating arbitrage for corporate and structured finance, we introduce the standard criteria adopted by rating agencies to assess riskiness of Constant Proportion Debt Obligations (CPDO). Then, we propose a new rating model in order to incorporate a more...

We extend the common Poisson shock framework reviewed for example in Lindskog and McNeil (2003) to a formulation avoiding repeated defaults, thus obtaining a model that can account consistently for single name default dynamics, cluster default dynamics and default counting process. This approach...

We illustrate the two main types of implied correlation one may obtain from market CDO tranche spreads. Compound correlation is more consistent at single tranche level but for some market CDO tranche spreads cannot be implied. Base correlation is less consistent but more flexible and can be...

We explain how the payoffs of credit indices and tranches are valued in terms of expected tranched losses (ETL). ETL are natural quantities to imply from market data. No-arbitrage constraints on ETL's as attachment points and maturities change are introduced briefy. As an alternative to the...

We consider the risk neutral loss distribution as implied by index CDO tranche quotes through a quot;scenario default ratequot; model as opposed to the objective measure loss distribution based on historical analysis. The risk neutral loss distribution turns out to privilege large realizations...

The introduction of CCPs in most derivative transactions will dramatically change the landscape of derivatives pricing, hedging and risk management, and, according to the TABB group, will lead to an overall liquidity impact about 2 USD trillions. In this article we develop for the first time a...

We develop an arbitrage-free framework for consistent valuation of derivative trades with collateralization, counterparty credit gap risk, and funding costs, following the approach first proposed by Pallavicini and co-authors in 2011. Based on the risk-neutral pricing principle, we derive a...