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Modelling correlation skew via mixing copulae and uncertain loss at default (Venue: Centre for Mathematical Sciences)

Schloegl, L (Lehman Brothers)
Saturday 26 February 2005, 08:30-09:30


We discuss aspects of the correlation skew in portfolio credit derivatives, in particular the relationship between implied and base correlation for tranches. We present a model which generates correlation skews by mixing copulae and introducing stochastic loss given default variables. This allows us to present a whole range of arbitrage-free base correlation curves.

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