In order to analyze the pricing of portfolio credit risk – as revealed by tranche spreads of a popular credit default swap (CDS) index – we extract risk-neutral probabilities of default (PDs) and physical asset return correlations from single-name CDS spreads. The time profile and overall...

order to analyze the pricing of portfolio credit risk as revealed by tranche spreads of a popular credit default swap (CDS) index we extract risk-neutral probabilities of default (PDs) and physical asset return correlations from single-name CDS spreads. The time profile and overall level of...