"Damn that time zone thing. When are we going to one global time for the whole world?" Obviously the French will only be happy if we agree through the UN to set "world time" equal to Champs Elysee time... ... So then we'd just end up with America unilaterally setting its own time (Texas Mean Time) ...... and everyone else on Cheese Eating Surrender Time ...... and the British saying how good it used to be in the old days when we ruled the world and everyone used Greenwich Mean Time.

CreditGuy, You didn’t answer my question. If you have an ’elegant’ way to hedge a FtD including recovery risk then you can apply it to the ‘simple’ case where recovery is assumed deterministic and homogeneous. I am looking forward seeing your answer. It’d better be ELEGANT!! QuoteOriginally posted by: CreditGuyDoubleV, you are cute, you have just won a candlelight dinner with me, but your answer ... maybe I will explain to you how certain things work... QuoteOriginally posted by: doubleVSo the question is to find an elegant way to hedge a FtD (correl<>100%) taking the recovery risk into account. Mm.. I would first like to see an ‘elegant’ way to hedge a FtD with correl <>100% assuming deterministic and homogeneous recovery rates! As far as I know, the hedge (deltas) within any model you choose will depend on the expected recovery rates. For example, for a 2 name FtD with R1=20% and R2=80%, delta1 will be higher and delta2 will be lowerthan if the two names had R1=R2=50% recovery (everything else equal).

Don't have any elegant solution if correlation is, say, 25%QuoteOriginally posted by: doubleVCreditGuy, You didn’t answer my question. If you have an ’elegant’ way to hedge a FtD including recovery risk then you can apply it to the ‘simple’ case where recovery is assumed deterministic and homogeneous. I am looking forward seeing your answer. It’d better be ELEGANT!! QuoteOriginally posted by: CreditGuyDoubleV, you are cute, you have just won a candlelight dinner with me, but your answer ... maybe I will explain to you how certain things work... QuoteOriginally posted by: doubleVSo the question is to find an elegant way to hedge a FtD (correl<>100%) taking the recovery risk into account. Mm.. I would first like to see an ‘elegant’ way to hedge a FtD with correl <>100% assuming deterministic and homogeneous recovery rates! As far as I know, the hedge (deltas) within any model you choose will depend on the expected recovery rates. For example, for a 2 name FtD with R1=20% and R2=80%, delta1 will be higher and delta2 will be lowerthan if the two names had R1=R2=50% recovery (everything else equal).

QuoteOriginally posted by: CreditGuyYes I work there, and you also work around here too, dude! Or you work for LEH maybe ?However, I want a much cleaner and more elegant solution to my question: how do you deal with recovery risk in a first-to-default basket? Pls leave aside the 100% correlation thing from now onwards...

This thread isn't a quiz, it's a plea for mercy. Don't expect too much.

ARE YOU A MALE OR A FEMALE?QuoteOriginally posted by: doubleVQuoteOriginally posted by: CreditGuyYes I work there, and you also work around here too, dude! Or you work for LEH maybe ?However, I want a much cleaner and more elegant solution to my question: how do you deal with recovery risk in a first-to-default basket? Pls leave aside the 100% correlation thing from now onwards...

There are a few sharks like you around here that don’t share the good things but only the crap, whenever you smell someone from a different company. This is disrespect for the freedom of this forum. QuoteOriginally posted by: CreditGuyARE YOU A MALE OR A FEMALE?QuoteOriginally posted by: doubleVQuoteOriginally posted by: CreditGuyYes I work there, and you also work around here too, dude! Or you work for LEH maybe ?However, I want a much cleaner and more elegant solution to my question: how do you deal with recovery risk in a first-to-default basket? Pls leave aside the 100% correlation thing from now onwards...

There are a few sharks like you around here that don’t share the good things but only the crap, whenever you smell someone from a different company. This is disrespect for the freedom of this forum. QuoteOriginally posted by: JohnnyThis thread isn't a quiz, it's a plea for mercy. Don't expect too much.

better to be the shark than the shark's lunchthat's part of freedom too

"There are a few sharks like you around here that don’t share the good things but only the crap, whenever you smell someone from a different company. This is disrespect for the freedom of this forum."Oh. Are you talking to me? You have the freedom to set a quiz. But if it's a quiz, then the quizmaster should know the answer. DoubleV seemed to be expecting an "elegant answer" from you, but you didn't seem to have one. Hence my comment advising her not to expect too much. Anyway, if it's not a quiz, then you should say something like:"Please could some kind person help me with this question?" And then people would come stampeding to your assistance. My experience of internet boards is limited, but I have a feeling that this is one of the nicer ones. I know that I, for one, spend about an hour each day (trying to) help people with questions.In the case of this thread, I answered your first question correctly. And then when you reposed it to allow for non-100% correlations I answered that question correctly too. In what way is this shark-like?

I think everyone so far has the wrong answer. Lets simplify the problem: two name first-to-default basket, CDS spreads 100bp and 50bp. Default (time) correlation [any Copula model you like] 100%. I think the right price for the F2D is (about) 90bp, and the hedge ratios are (about) 90% in the 100bp name, and 10% in the 50bp name.What assumptions make this answer correct (rather than the standard 100bp, 100% hedge ratio)?

QuoteOriginally posted by: HigeToHageI think everyone so far has the wrong answer. Lets simplify the problem: two name first-to-default basket, CDS spreads 100bp and 50bp. Default (time) correlation [any Copula model you like] 100%. I think the right price for the F2D is (about) 90bp, and the hedge ratios are (about) 90% in the 100bp name, and 10% in the 50bp name.What assumptions make this answer correct (rather than the standard 100bp, 100% hedge ratio)?Do you work for UBS?? Do you?? How are you getting to a 90bp price when you have 95bps of hedge cost? When you refer to the 100% hedge ratio are you talking about hedging 100% of your exposure?? I'm assuming you're getting to your 90 hedge cost by hedging out only 95% of your exposure (.95*.9*100+.95*.1*50) ~ 90bps. I see 95% a lot but I'm not sure what you're trying to get to, are you trying to incorporate 95% VAR or something?? Please tell me you're not.