the web's biggest credit risk modeling resource.

Credit Jobs

Home Glossary Links FAQ / About Site Guide Search


Submit Your Paper

In Rememberance: World Trade Center (WTC)

doi> search: A or B

Export citation to:
- Text (plain)
- BibTeX

A Note on Markov Functional Loss Models

by Nordine Bennani of Dresdner Kleinwort

November 2006

Abstract: In this paper, we present an extension of the Forward Loss Model as presented initially in [5]. The Markov Functional Loss Model will allow for an even simpler and tractable approach for pricing correlation products. After describing the main ideas and details of the framework, we apply it to the calibration of the index tranche market, with a particular focus on the 10Y market. We question the general approach to term structure calibration as a pure bootstrapping, and provide an alternative solution. We give numerical examples in which we show an almost perfect fit to all maturities, for both iTraxx and CDX.

Books Referenced in this paper:  (what is this?)

Download paper (243K PDF) 16 pages