Naslov
Pricing and calibration in market models

Autori
Gehmlich, Frank ; Grbac, Zorana ; Schmidt, Thorsten

Vrsta, podvrsta i kategorija rada
Poglavlja u knjigama, znanstveni

Knjiga
Credit securitisations and derivatives : challenges for the global markets

Urednik/ci
Rösch, Daniel ; Scheule, Harald

Izdavač
John Wiley & Sons

Grad
Chichester

Godina
2013

Raspon stranica
245-270

ISBN
978-1-119-96396-7

Ključne riječi
CDO, loss process, contagion, single tranche CDO, top-down model, market model, affine processes, EM-algorithm, extended Kalman filter, iTraxx

Sažetak
The goal of this article is to study in detail the pricing and calibration in market models for credit portfolios. Starting from the framework of market models proposed in Eberlein, Grbac, and Schmidt (2013), we consider a slightly simplified setup which eases calibration. This leads to a new class of affine models which are highly tractable. Conditions for absence of arbitrage under various types of contagion are given and valuation formulas for single tranche CDOs and options on CDO spreads are obtained. A simple two-factor affine diffusion model is calibrated to iTraxx data using the EM-algorithm together with an extended Kalman filter. The model shows a very good fit to all tranches and all maturities over the full observation period of four years.

Izvorni jezik
Engleski

Znanstvena područja
Matematika

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