CDS on ABS tranche Correlation..

britannia · February 26th, 2007, 8:04 pm

Does anyone have any ideas on how these instruments are traded? How is the implied correlation calculated?

bridgethu · February 26th, 2007, 9:02 pm

here's the doc on how it's tradedhttp://www.markit.com/information/affiliations ... unch.pdfin terms on the implied correlation, is it simular to tranches on CDX or iTraxx?

britannia · February 26th, 2007, 9:22 pm

Thank you, but if the implied correlation for ABX tranche is similar to that of CDOs, then what is the standard model 1-factor Guassian Copula?

StructCred · February 27th, 2007, 5:56 pm

ABX tranches are similar to CDOs, but they aren't exactly the same animal. Since the underlying ABCDS are exposed to fairly similar collateral, modeling defaults, delinquencies and prepay on that collateral is more important than the measuring correlation between the underlying ABS tranches. The discussion here had some good posts about TABX and how people model and mismodel it so far.