How do I use them to value a tranche on any given portfolio (as the topic appears in several threads and I did not really find answersI thought creating a thread for it would be a good idea)?Y.

Mkay..the thread was viewed 600 times but no answer...does that mean that no one has a clue?

first of all ur question is not clear. if ur question is that given the price and correlation of DJ itraxx can u price other portfolio,s then answer is nooooo. u will have to price a tranche by a so model. currently market players are using gaussin copula approach with monte carlo simulations. if u want the papers then i will post it. but from last two months correlation products are seeing some kind of movement that cannot be reflected by this model so some are trying to move away from this approach to . but still its the market standard. u can search on wilmott only . their u will find gilani paper. thats good. i used that only to price cdo and its giving good resulta.

Correlation is highly portfolio dependent, so you cannot simply enter iTraxx base correlations in a bespoke tranche pricing. At best, you can use the skew of standard index tranches to gauge the market's risk aversion w.r.t. several tranches.

Suppose I have a model that allows me to price tranches and even takes the correlation smile into account. I have model parameters calibrated on CDS, Itraxx and CDX tranches markets. What's the experience of people on the forum as far as pricing tranches on a portfolio that is not the 125 Itraxx or CDX names is concerned?Y. [edited: in response to umbumpfizz]

QuoteOriginally posted by: gm152091Correlation is highly portfolio dependent, so you cannot simply enter iTraxx base correlations in a bespoke tranche pricing. At best, you can use the skew of standard index tranches to gauge the market's risk aversion w.r.t. several tranches.Ok so now I know what I cannot do .But what do I do then?Y

UmpBumpFizz,What is this Gilani paper you mention. I tried to search and did not run across it. Any chance you could post it, or at least give a complete reference. Thanks a bunch!

wahoo2000, maybe you're looking for Galiani's Master Thesis

when a cdo deal is made different prices r quoted from both the sides and negotiated. when a new porfolio is launched some guys use sector wise correlation or equity implied to price a cdo and when deal is through once base correaltion curve is obtained. for base correlation i there are 3 papers. sg correlation one by bear stearns (that i use) and morgan stanley paper u can use any of them to get base correlation curve.tell me ur id i will forward them or u will get on wilmott

umpbumpfizz thanks for your kind help. I particularly liked the "when a cdo deal is made different prices r quoted from both the sides and negotiated" bit, pictures of people talking into telephones, jotting stuff on notepads, maybe swearing lightly, came to my mind: I saw nice ties, bespoke suits, coffee mugs by the newspapers, computer keyboards with yellow and green keys.....