Jean-Pierre Fouque
Multiname and Multiscale Default Modeling
Multiname default modeling is crucial in the context of pricing
credit derivatives such as Collaterized Debt Obligations (CDOs). We
consider here a simple reduced form approach for multiname defaults
based on the Vasicek or Ornstein-Uhlenbeck model for the hazard rates
of the underlying names. We analyze the impact of volatility time
scales on the default distribution and CDO prices. We demonstrate how
correlated fluctuations in the parameters of the name hazard rates
affect the loss distribution and senior tranches of CDOs. Joint work
with Knut Solna (UC Irvine) and Ronnie Sircar (Princeton).