The pricing of portfolio credit risk
By: by Nikola Tarashev and Haibin Zhu
Contributors: Zhu, Haibin, 1972-; Bank for International Settlements. Monetary and Economic Department
Series: BIS working papers -- no. 214
Publisher: Bank for International Settlements
Published: 2006
Place of publication: Basel, Switzerland
Language: eng
Format: [electronic resource] /
Description: Equity and credit-default-swap (CDS) markets are in disagreement as to the extent to which asset returns co-move across firms. This suggests market segmentation and casts ambiguity about the asset-return correlations underpinning observed prices of portfolio credit risk. The ambiguity could be eliminated by -- currently unavailable -- data that reveal the market valuation of low-probability/large-impact events. At present, judicious assumptions about this valuation can be used to reconcile observed prices with asset-return correlations implied by either equity or CDS markets. These conclusions are based on an analysis of tranche spreads of a popular CDS index, which incorporate a rather small premium for correlation risk.
Notes: Title from PDF file (viewed on Sept. 27, 2006).

"Monetary and Economic Department."

"September 2006."

Includes bibliographical references.

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