<t>I had decided to go away, but I am a little interested in this point, because of course I cannot see what other dealers do, you guys actually know more than me.Are other dealers quoting Base Correlations? Obviously if they are quoting compound correlations they will be different, they are complet...

<t>A few messages since I've been away... Although a lot less controversial...We should separate discussions of Base Correlation vs. Large Pool Model. The point of the Large Pool Model is to create a transparent, distributable model that takes very few inputs to enable all market participants to hav...

<t>Okay then, I now understand.You do need to make some assumptions about the timing of losses within a time period in any model. You might go for same $ per year, same % per year, or you may decide to use 1 year spreads, 2 year spreads etc.Within the Large Pool Model, we assume that the default pro...

<t>Interesting that you should reply to a message from the author of these pieces, and not contact me directly.This research is specifically built for our clients, so isn't made generally available (the Base Correlation stuff is different in that case).In any case, this isn't really the right thread...

<t>I don't disagree with your main point, that amounts and timings of losses are important, but in the Base Correlation framework we control for timings, so such things don't matter. This is not an approximation or a function of the specific model.When we talk about adding up expected losses (in the...

<t>Sorry, what I meant was...Imagine there is an instrument where there is a (fixed but unknown) expected loss, and you need to be paid a spread to bear that loss. Then those things are related. They are related without you particularly needing to know about the nature of the instrument (or whether ...

<t>Another way perhaps...The expected loss for a tranche depends on correlation only if your starting point is the porfolio spread or default probability.If I tell you an instrument has an expected loss, and that you will need to be paid a spread to bear that expected loss, what more do you need to ...

<t>Interesting.. I agree that one expected loss is not necessarily the point that is most interesting (that is the point where correlation is most static ?), but I can't get away from the fact that it is a function of expected loss somehow. I did consider the inflexion point of the loss distribution...

<t>CreditGuy, that's one of those emails that probably sounds the way you wanted it to out loud, but in text, without any tone it may be misinterpreted.If you mean that I should be posting other people's research in order to be balanced... I'm afraid I can't do that. This research is not academic re...

<t>I notice that Bear Stearns has done an interesting piece on the different deltas - they get similar results to you.Main conclusion (to paraphrase - apologies if any Bear people are reading) is that deltas are very different, Base Correlation deltas have been historically "better" (I think this is...

The only insight I can give is that compound correlation not changing is very different to Base Correlation not changing (which is different to ATM Base Correlation and skew not changing). Then we have to choose which is "best".RegardsLee

<t>Good way of putting it Complexity. I might just add the following at the beginning...There is an intuitive definition of delta, that is how much does the instrument price change, when the underlying market changes by 1bp, if nothing else changes.The issue when defining delta then becomes twofold:...

<t>Well that is very interesting... The issue then is what does it mean to keep correlation constant... I think it's particularly misleading to keep 3-6% compound correlation constant because its an artificial construct. (More on just how artificial this is soon). But it is likely also wrong to keep...

<t>It's not the Base Correlation framework that can give you deltas, rather the Large Pool Model.That said, the deltas it gives are "correct", or intenally consistent as it is a calibration model.That doesn't mean that this is the best or most efficient delta by any means however.On the subject of d...

Don't worry, I'm not upset, but as the only person around who's not anonymous (it seems) and one who is clearly associated with a particular firm, the last thing I want to happen is to get involved in a very public slanging match. I know how this things can deteriorate!RegardsLee