Semi-Analytical Valuation of Basket Credit Derivatives in Intensity-Based Models
نویسنده
چکیده
This paper presents a semi-analytical valuation method for basket credit derivatives in a flexible intensity-based model. Default intensities are modeled as correlated affine jump-diffusions. An empirical application documents that the model fits market prices of benchmark basket credit derivatives reasonably well, consistent with the observed correlation skew. Hence, I argue, contrary to comments in the literature, that intensity-based portfolio credit risk models can be both tractable and capable of generating realistic levels of default correlation. ∗Goldman Sachs International, 133 Fleet Street, London EC4A 2BB, [email protected]
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