<t>Good morning, does anyone know any details about the “computer error” that supposedly led Moodys to rate CPDOs as Aaa instead of A1 ? I know the rating raised a lot of eyebrows at the time, but this story about accidentally getting it wrong seems even more strange. Didn't lots of structurers repr...

QuoteOriginally posted by: Gillthe correlation which is quoted by the dealers is not a base correlationUnless it's from JPM.

Right, that's pretty much all I was saying. I guess you have to be wary when you see an upward sloping b.c. graph before declaring "correlation skew" - a 5bp price drop in a mezz tranche by itself can lift the senior b.c. by 10%, without the senior tranche prices having moved at all. -Thanks.

<t>It's a result of assuming the same average recovery rate for all defaults, so eg. with 10m per name and 30% recovery, possible portfolio losses are exactly 7,14,21,28,... If you're calculating subordination for a certain rating you're effectively looking for a certain percentile - ie. subord must...

<t>QuoteOriginally posted by: Gillkartsy:the base correlation is not flat it's upward sloping! Sorry how do you mean? I start with b.c.'s (equity first) 15%-15%-15%-15%-15% and solve for prices. Then I up the spread for the 9-12% tranche and reduce the spread for 12-22%. I solve for b.c.'s and get 1...

<t>Hi all, a question about interpreting base correlations. I'm looking at the JP large-pool model, on an index like the iTraxx. To start with assume all correlations are flat, say all basecorrs are 15%, and solve for tranche prices. I get s.th. like 40%/300bp/75bp/20bp/3bp. Now take a senior tranch...

<t>QuoteOriginally posted by: MarsdenNo. Exp(mu*T) is the median, but not the mean, which is exp(mu*T+1/2*sigma^2*T).Geometric Brownian Motion is something like a variable with equal probabilities of going up by 25% and down by 20% in every time step: after two time steps, it is most likely to be ba...

<t>There is only one drift, mu. The expected value at time T isn't exp(mu*T+1/2*sigma^2*T), it is just exp(mu*T). The extra term in the equation S(T) = S(0) exp( [mu - sigma^2 / 2]*T + v*B(T) ) doesn't change that, although it means that the expected overall rate of return, E (log(S(T)/S(0)) , is [m...

Well, changing Seqt to Se-qt fixes the calls, but looks to me like the problem with the up-put formulas is more fundamental. Anyway I'm happy with the results from the mathfinance calculator. Thanks!

<t>Hi ... query about the barrier option formulas in "PW introduces quantitative finance" ... are there some problems with the up & out puts and the up & in puts? e.g. S=85, E=100, Sb=90, t=0.4, sig=0.7, r=0, q=0, up & out put with E>Sb. I get: a=0.944, b=1.0588, d1= -0.1457, d2= -0.5885...