Advancing the Field of Quantitative Finance
formerly the IAFE

Event

Event: Hedging Defaults and Credit Risk Spreads of CDOs
Date: November 1
Time: 5:30 Registration, 6:00 Program Begins, 7:30 Reception
Location:
Merrill Lynch
2 King Edward Street
London

The Credit Risk Committee of the International Association of Financial Engineers presents

Hedging Credit Spread and Default Risks in CDO Tranches


Slides from this event can be viewed on Jean-Paul's website.

Panelist:
Jean-Paul Laurent, Professor of Finance at the University of Lyon and Scientific Consultant to BNP PARIBAS

Moderator:
Michel Crouhy, Head of Research and Development at IXIS Corporate and Investment Bank (Groupe Caisse d’Epargne)

Jean-Paul will be discussing his paper in two parts.
In the first section, Jean-Paul will present an informal list of issues related to the risk management of CDOs (such as the use of copula models for the computation of credit deltas, a discussion of different sources of incompleteness, the relative magnitude of credit spread and default risks, hedging based upon the index or upon a name per name basis) and different ways to tackle the problem. The second section will present new research related to the joint hedging of default and credit spread risk in an intensity framework: defaults are modelled through a multivariate Cox process, with default intensities following affine intensities as in the Duffie and Garleanu paper. The feasibility and construction of a dynamic hedging strategy of a CDO tranche option based upon single name credit default swaps is then being considered.

Hosted By:
Merrill Lynch