<t>Well, I am just one person.But in the retail market, you can definitely create an advantage for yourself. The difficulty is in raising enough capital to efficiently capitalize on your advantage.As far as having passion for finance - if you don't have it, get the F out.And as for real estate, most...

<t>The Gaussian copula is flat out wrong for pricing tranche options unless it is a conditional Gaussian with a term structure of correlation. Simply put, the Gaussian copula has a memory wrt correlation so the forward tranche value will be inconsistent with the spot if you put both into the same Ga...

<t>first consider the case where your tranche is actually the entire portfolio cap structure (0-100%). You have the option to sell portfolio protection, say with expiration in 3 months, at some strike. If the portfolio itself is a traded security (e.g. iboxx/tracx), then you can delta hedge with a p...

<t>The highway robbing fools that I have to trade with only hit me up for 3-5 bp on the 100-150 most liquid north american credits in 5 year cds. So 15 bps sounds pretty freaking steep, let alone 15%. By the way, if you mean 15% of the mid, that also sounds way too high except for a few AAA credits....

short answer: any credit portfolio products where payoff is contingent on the realization of the loss distribution.For example, First (or Nth) to default baskets, mono-tranche CSOs, certain types of credit linked notes, options on any of the above . . .

<t>I think maybe the argument is that defaults are either an unexpected windfall or they break you, but where you make your bread and butter is on the interplay of carry and rebalancing (gamma) due to spread moves. Given that situation, spread corr will drive your P&L.Well, I guess I can see tha...

How about an 8-ball, a bundle of quality, a loosie full of dust, and widemouth of Steel Re. A great gift that he is guaranteed NOT to remember.

just make damn sure you are not short the put if you price w/ B-S

<t>Look, Bob, if you want to have a reliable estimate of LGD, you need to be pretty damn close to the actual default. If you are sitting pretty in investment grade, you might as well just choose your favorite random number generator and order another round of low-carb beers.Once you get close to whe...

It is because there is a major bias toward hiring men in most quant groups.

Quotedude,I am interesed in knowing what LGD should be under extremely bad market situation.That would be 100%, Bob. Rule of thumb: if you are sitting at the table, and you don't know who the new equity is, then you are the new equity.

<t>Yeah, it seems like every day I hear about more cats trying to get in on the capstruct arb game. This is supposedly one of the drivers of the market for recovery swaps. Strangely, the clamor for "equity default swaps" seems to have subsided, although I'm sure they will come back again in some for...

<t>digital cds and/or recovery rate swaps are not a liquid market yet, but I know of at least two banks making noise that indicates trading may pick up soon.In the absence of a liquid market in recovery instruments, it is possible to construct a statistical hedge for fixed-recovery deals using vanil...

Thanks for the pointers, James, much appreciated. Luckily, I am in good health (physically at least, not sure about mentally.)

<t>The simplest form is just a floating rate CDS where the spread resets periodically to the market rate. All you need is the forward spread curve to value these, although I guess you could go and model interest rates as well if you really wanted to.I think the basic motivation is to isolate default...