equity bespoke tranche

dej · February 8th, 2006, 2:50 pm

I want to price a bespoke equity tranche with a attachment point equal to 0 and a detachment point equal to 1.5% or 0.5%.Assuming that I have found the right base correlation curve (after some rescaling by expected losses ratio...), I don't know how I can interpolate the base correl curve for very low strikes because I have no points below standard 3%. The same problem arises with mezzanine tranches with attachment points below 3%. For the other strikes I have supposed that a linear interpolation works well but I'm not sure.Does anyone know some good papers or have a good idea concerning this topic?Thanks a lot!

crazyhorse · February 8th, 2006, 2:58 pm

Have a look at the paper from ML: Base correlation and bayond. You can see there that linear (inter)extrapolation is not a good idea because for example in the iTraxx case the base correlation below 3% is quite flat. Also have a look at the JPM Credit Derivatives page concerning Tranchelets.

dej · February 8th, 2006, 3:34 pm

do you know where I can find the ML paper?

Money · February 9th, 2006, 11:56 am

May I get these papers ???

Money · February 10th, 2006, 12:35 pm

Can somebody help out ????

Money · February 12th, 2006, 2:05 am

hello...

vespaGL150 · February 13th, 2006, 2:54 am

QuoteOriginally posted by: crazyhorseHave a look at the paper from ML: Base correlation and bayond. You can see there that linear (inter)extrapolation is not a good idea because for example in the iTraxx case the base correlation below 3% is quite flat. Also have a look at the JPM Credit Derivatives page concerning Tranchelets.If someone has either of the following: - Merrill's: Base correlation and beyond - JP Morgan's tranchlet paper would it be possible to upload them? I could trade Citigroup's 'Base Correlation - the term structure dimension' if that provides an incentive?Thanks

crazyhorse · February 13th, 2006, 8:51 am

the ml and jpm paperMoney: once you should also contribute something!

player · February 13th, 2006, 9:08 am

QuoteMoney: once you should also contribute something!Agreed

Money · February 13th, 2006, 10:45 am

OK, i know i am too selfish (perhaps due to workign in this industry)here is my contribution, i am not a cold-blooded devil ...enjoy !

Money · February 13th, 2006, 11:49 am

By the way,does any people have this old ML report:Factor Models for Synthetic CDO valuation

Money · February 14th, 2006, 11:13 am

any one with ML paper ? Factor Models for Synthetic CDO valuation