Hi list,can you be a little bit more specific or give some references pls ? Not that familiar with this matter. Tx !

Well, not only when a2(x)=k0 is cst, but clearly when a2(x)=k0*x+k1 for cst k0,k1. But not sure for non-linear a2(x) fonctions...

Hi there !I'm trying to figure out whether the solution to a SDE of the formis a Gaussian process. Clearly, it is the case if is linear. But does this hold in general ?Many thanks

<t>Hi Sebastien;I've observed that generally speaking (I mean whatever are the individual DP curves) your model tends to return a (much) lower FS than with fixed recovery. I guess this is because when you add randomness, you allow recoveries to be lower, but also higher than average (say 40%). It se...

<t>Although the sample covariance matrix is known to be an unbiased estimator of the true covariance matrix, I have sthg weird.In the case where X is a pxn multivariate normal vector (p being the dimension and n the number of samples), the sample covariance matrix S has Whishart distributionBut the ...

<t>Hi. It is the case that the sample covariance is an unbiaised estimator of the true covariance, you're right. Regarding the specific Aaron's example, which is a very good one I think, I do not get the same results. For the pair of samples for which the cov is non zero, say (0,1) and (1,0), the co...

<t>Well, I fear I don't get your point either ... I simplly emphasized the fact that you could not build a risk-free portfolio having an economic value, because this would require the combination of a credit derivative together with its underlying, and in the case of a CDS, the underlying does not h...

<t>QuoteOriginally posted by: daveangelHow about you but a bond issued by IBM and buy protection on that bond ? Why does that not work ?Well, my humble opinion is that the bond gives you information about default probabilities, but unfortunately nothing regarding exact fair value. Suppose for exampl...

<t>QuoteOriginally posted by: daveangelwhat do you mean ? Can you show us an example of this "non-tradable" virtual object ?Well, I mean the following.In equity, you have a derivative on a financial instrument. For example, it can be a call on a stock. The process for building an arbitrage portfolio...

<t>The problem that the payoff is discontinuous is not really the problem I think. For instance, you're right, the equations are well defined even for such a kind of payoffs. The key issue is that you cannot find an "arbitrage portfolio" ... More precisely, you may obtain a riskyless portfolio, but ...

Yes Aash, I perfectly agree with you : default risk has been underestimated. This is a straightforward consequence of using light-tail distributions to model extreme-event processes....

<t>QuoteOriginally posted by: AashI clearly jumped the gun on this one. Yes, I would agree then that CDS should not be all that different to a standard option.Well, yes and no. I think we cannot reduce CDS/CDOs as standard options. Personnaly, I see quite an important difference.The undelrying stoch...

Well, I just joined the forum, and I must admit I didn't read the 4 pages of comments. Just a view that I wanted to share.What I would like to stress is that currently short-selling is regulated on some places, but not CDSses...

<t>Isn't there sthg nasty with CDSses ? I mean : in my view, CDS could be used to kill a company, especially now. Assume you're a very rich hedge fund. You buy a lot of protection on a company C. What will happen ? If there are some liquidity limitations, as it is currently the case on that market, ...

<t>Hi the experts of BC correlations,Let me ask you a question: is there any proof that BC curve is in creasing wrt seniority (while we know that it is not the case for implied corr because of the smile)...In other words, is it possible, theoretically speaking to have a BC curve which is partially d...