2007 Wiping the smile off your base (correlation curve) (with James Wood)
We discuss problems with interpolating and extrapolating base correlation curves and examine the pricing of CDO tranches with non-standard subordination levels. We introduce an alternative risk measure, the expected loss of equity tranches. We calculate upper and lower boundaries on "base EL", and set out the behaviours that base EL must obey. We investigate interpolation schemes that best avoid model arbitrage. We also look at the calculated prices and sensitivities for tranches using these different methods.
2006 Loss unit interpolation in the collateralized debt obligation pricing model.
In this paper I present a small change to the updating formula in Andersen, Sidenius and Basu's recursion method for calculating loss distributions. The change allows accurate representation of the losses of very heterogeneous portfolios with a small number of loss states, improving performance. Also, the inverse formula is given, for fast calculation of spread sensitivities.
2009 Counterparty Credit Risk & Central Clearing (with Josh Danziger)
We look at recent changes in credit risk management and the introduction of central clearing for credit trading. We explain the use of credit valuation adjustments (CVAs) for incorporating credit risk into trade valuation, and how to calculate them using 3 models of varying complexity. We show the effect of various factors on credit risk, and look at using them for hedging risk against a counterparty's credit risk and our own credit risk. Finally we look at extensions to portfolios, including approaches for dealing with netting across trades and credit support annexes (CSAs).
2009 Negative Basis in Crisis (with Josh Danziger)
We investigate the change in behaviour of the basis between CDS and bonds over the credit crisis. In particular we look at factors affecting the basis, whether one market drives the other, and whether the basis is still mean reverting.