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                                                     Seminar

             Department of Systems Engineering and Engineering Management
                                  The Chinese University of Hong Kong

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Title

:

Default Intensities implied by CDO Spreads: Inversion Formula and Model Calibration

　

　

　

Speaker

:

Mr. Yu Hang Kan

　

　

Department of Industrial Engineering and Operations Research

　

　

Columbia University

　

　

　

Date

:

January 08th, 2010 (Friday)

　

　

　

Time

:

4:30 p.m. - 5:30 p.m.

　

　

　

Venue

:

Room 513

　

　

William M.W. Mong Engineering Building

　

　

(Engineering Building Complex Phase 2)

　

　

CUHK

　

　

　

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Abstract:
　

We propose a simple computational method for constructing an arbitrage-free CDO pricing model which matches a pre-specified set of CDO tranche spreads.
The key ingredient of the method is a formula for computing the local default intensity function of a portfolio from its expected tranche notionals. This formula can be seen as an analog, for portfolio credit derivatives, of the well-known Dupire formula. Together with a quadratic programming method for recovering expected tranche notionals from CDO spreads, our inversion formula leads to an efficient non-parametric method for calibrating CDO pricing models.

Comparing this approach to other calibration methods, we find that model-dependent quantities such as the forward starting tranche spreads and jump-to-default ratios are quite sensitive to the calibration method used, even within the same model class. On the other hand, comparing the local default intensities implied by different credit portfolio models reveals that apparently very different models such as static Student-t copula models and reduced-form affine jump-diffusion models, lead to similar marginal loss distributions and tranche spreads.


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Biography:
　

Yu Hang Kan is a PhD student in the department of Industrial Engineering and Operations Research at Columbia University. He holds B.S. in Mathematics and Economics and M.S. in Financial Engineering both from University of Michigan - Ann Arbor. He received second place in Best Student Research Paper Award, INFORMS 2009 Financial Services Section, and First place in Best Presentation Award, INFORMS 2008 Financial Services Section. He has also worked in Standard and Poor\'s, Morgan Stanley, and Goldman Sachs & Co.


************************* ALL ARE WELCOME ************************

　

　

　

Host

:

Prof. Kwai-Sun, Leung

Tel

:

(852) 2609-8307

Email

:

ksleung@se.cuhk.edu.hk

　

　

　

Enquiries

:

Prof. Nan Chen or Prof. Sean X. Zhou

　

:

Department of Systems Engineering and Engineering Management

　

　

CUHK

Website

:

http://www.se.cuhk.edu.hk/~seg5810

Email

:

seg5810@se.cuhk.edu.hk

　

　

　

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