Factor Models for Credit Correlation

by Stewart Inglis of Merrill Lynch, and
Alex Lipton of Merrill Lynch

June 25, 2007

Abstract: In this paper we briefly describe dynamic and static factor models for credit correlation, and show how the static model can be calibrated to the market and used for the pricing of standard and bespoke tranches including tranchelets.

Keywords: dynamic, static, factor, models, credit, correlation, bespoke, tranche.

Published in: RISK, Vol. 22, No. 4, (April 2009), pp. 98-99.

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