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by ThinkDifferent
September 11th, 2008, 9:08 am
Forum: Technical Forum
Topic: CDO pricing with random recovery
Replies: 221
Views: 109542

CDO pricing with random recovery

<t>QuoteOriginally posted by: androidagree with katastrofa that if anything this model would create a positive correlation between recovery and default prob: names that have a higher prob of defaulting will likely be the first to do so and therefore will be assigned a conditionally higher recovery.h...
by ThinkDifferent
September 11th, 2008, 6:55 am
Forum: Technical Forum
Topic: CDO pricing with random recovery
Replies: 221
Views: 109542

CDO pricing with random recovery

<t>Quoteto achieve the above you can model rec rate as a function of survival prob. this approach makes pricing difficultkatastrofa: No, it doesn't. It won't work, but it's not difficult.another katastrofa quote:katastrofaQuoteOne could, of course, try to make the recovery rate distribution a functi...
by ThinkDifferent
September 10th, 2008, 11:09 pm
Forum: Technical Forum
Topic: CDO pricing with random recovery
Replies: 221
Views: 109542

CDO pricing with random recovery

<t>QuoteOriginally posted by: androidThinkDifferent, apart from having doubts about its feasibility, I really don't see the point of your solution. the point of the solution is to have a negative relationship (correlation) between recovery and default rate. which is an empirical fact, not "a spuriou...
by ThinkDifferent
September 10th, 2008, 9:56 am
Forum: Technical Forum
Topic: CDO pricing with random recovery
Replies: 221
Views: 109542

CDO pricing with random recovery

<t>QuoteOriginally posted by: katastrofaQuoteOriginally posted by: ThinkDifferentAssuming the same notional for each name, there are two integers n_L, and n_H such that if the number of defaults is less than n_L then the tranche is not affected, if above n_H than a tranche is exhausted. e.g., for th...
by ThinkDifferent
September 10th, 2008, 9:51 am
Forum: Technical Forum
Topic: CDO pricing with random recovery
Replies: 221
Views: 109542

CDO pricing with random recovery

<t>QuoteOriginally posted by: androidhow do you reconcile this with the fact that indices trade with a certain constant level of recovery?this is not a problem. We need to exactly match the CDS spreads. In case of constant recovery it is equivalent to havingP_M(0,t) = E[S_t], where P_M(0,t) is a mar...
by ThinkDifferent
September 9th, 2008, 7:28 am
Forum: Technical Forum
Topic: CDO pricing with random recovery
Replies: 221
Views: 109542

CDO pricing with random recovery

<t>Assuming the same notional for each name, there are two integers n_L, and n_H such that if the number of defaults is less than n_L then the tranche is not affected, if above n_H than a tranche is exhausted. e.g., for the first [0%, 3%] tranche n_L=0, and some n_H. So that for the first n_H defaul...
by ThinkDifferent
September 9th, 2008, 5:41 am
Forum: Technical Forum
Topic: CDO pricing with random recovery
Replies: 221
Views: 109542

CDO pricing with random recovery

This is (page 34) one of the examples of dynamic models where stoch recovery is a function of default prob. Also, would it make sense to have recovery a function of a tranche? i.e. R1 for 0%-3% tranche, R2 for 3%-7% tranche, etc. The CDO pricing looks feasible then.
by ThinkDifferent
September 8th, 2008, 6:38 am
Forum: Technical Forum
Topic: CDO pricing with random recovery
Replies: 221
Views: 109542

CDO pricing with random recovery

does anyone know anything about stoch recovery modelling in the dynamic model framework? e.g. we can have rec. rate a function of the def. prob, so that we capture the negative relationship between rec. rate and default prob.this makes CDO pricing more cumbersome, however....
by ThinkDifferent
August 13th, 2008, 5:10 am
Forum: Numerical Methods Forum
Topic: A robust Laplace inversion algorithm by Iseger
Replies: 6
Views: 55756

A robust Laplace inversion algorithm by Iseger

sure it's Section 6.3, page 25, Algorithm, Step 1. when calculating f_hat_jk no Re() should be taken there. Thanks for your post re the Stehfest algorithm, by the way. I am reading Abate&Whitt paper.
by ThinkDifferent
August 12th, 2008, 7:57 am
Forum: Numerical Methods Forum
Topic: A robust Laplace inversion algorithm by Iseger
Replies: 6
Views: 55756

A robust Laplace inversion algorithm by Iseger

thanks a lot. There is actually a typo in a Robust Laplace inversion algorithm.... took me a while to find it.
by ThinkDifferent
August 7th, 2008, 1:13 pm
Forum: Numerical Methods Forum
Topic: A robust Laplace inversion algorithm by Iseger
Replies: 6
Views: 55756

A robust Laplace inversion algorithm by Iseger

did anyone try to implement it?This is the algorithm outlined in section 6.3 of Iseger's paper "Numerical Transform Inversion Using Gaussian Quadrature".
by ThinkDifferent
August 7th, 2008, 2:07 am
Forum: Numerical Methods Forum
Topic: Stehfest algo for Laplace inversion question
Replies: 27
Views: 138729

Stehfest algo for Laplace inversion question

Thanks a lot.Actually, Iseger's algorithm (the one called A Robust Laplace Inversion Algorithm) deals with discontinuities/singularities quite well. I've implemented it and going to test how it works.
by ThinkDifferent
August 5th, 2008, 3:42 am
Forum: Numerical Methods Forum
Topic: Stehfest algo for Laplace inversion question
Replies: 27
Views: 138729

Stehfest algo for Laplace inversion question

<t>hmm...I've tried doing the following:In order to avoid recovering a density which has a Dirac delta function form, we can try to invert a distribution, which will be a step function (Heaviside). Here we can use the following: to get distribution function via inverse laplace. I've tested it for a ...
by ThinkDifferent
August 5th, 2008, 1:24 am
Forum: Numerical Methods Forum
Topic: matlab code for markov functional model
Replies: 6
Views: 58031

matlab code for markov functional model

Hi,what kind of Markov functional model you are implementing?
by ThinkDifferent
August 4th, 2008, 8:10 am
Forum: Numerical Methods Forum
Topic: Fast (inverse) Laplace transform
Replies: 19
Views: 61162

Fast (inverse) Laplace transform

Axel,how does this method deal with inverting discrete r.v? Or if, say, a continuous cdf having a concentration of probability like a point mass, i.e, with a density having high peaks.