CDO Tranche Delta - Compound Vs Base Correlation models

gulati · March 21st, 2005, 4:03 pm

Has anyone compared delta (or leverage) given by base correlation and compound correlation models? I am using standard 1 factor gaussian coppula model. I notice that compound correlation model's deltas are quite higher for mezz tranches as compared to base correlation model's. Any thoughts?

Soren · March 31st, 2005, 7:48 am

You are not alone, this is also discussed in Finger (2005) 'Issues in the Pricing of Synthetic CDOs' where differences in deltas up to a factor of 3 are found. In this paper, work by St. Pierre et al. is referenced where a comparison of hedging performance based on the two types of correlation is made. St. Pierre, M. et al. (2004). Valuing and Hedging Synthetic CDO Tranches Using Base Correlations, Credit Derivatives, Bear Stearns. May 17Unforfortunately, I have not been able to find this paper - if anyone has it I would love to read it.

gulati · April 4th, 2005, 6:30 pm

Thanks, Soren. I also couldn't find any of these papers....do you know the gist of these papers?

Soren · April 4th, 2005, 6:33 pm

You can get the Finger paper from SSRNhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=643267Give it a read, it's worth your time

fodao · April 7th, 2005, 1:32 pm

Hi,I have St. Pierre, Bear Stearn paper if anyone wants. Do you know of a free online storage space where i can drop it?

creditderivative · April 7th, 2005, 5:08 pm

Sorry for the duplicate.

creditderivative · April 7th, 2005, 5:09 pm

Hi fodao,You can upload it here on the forum.

scholar · April 13th, 2005, 8:28 pm

Fodao, could you please upload the paper. Thanks in advance.

Greenspoon · April 14th, 2005, 12:41 pm

Any idea of the spread quotes for Mezzanine tranche on CDX.NA.HY ? Will it a flat bp spread or a running Spread + Upfront Payment (as % of tranche notional). Thanks.N

fodao · April 15th, 2005, 2:17 am

The Bear Sterns Base corr. paper (St. Pierre et al).