About the Authors.
Notation and List of Symbols.
1 Introduction: Credit Modelling Pre- and In-Crisis.
1.1 Bottom-up models.
1.2 Compound correlation.
1.3 Base correlation.
1.4 Implied Copula.
1.5 Expected Tranche Loss Surface.
1.6 Top (down) framework.
1.7 GPL and GPCL models.
1.8 Structure of the book.
2 Market Quotes.
2.1 Credit indices.
2.2 CDO tranches.
3 Gaussian Copula Model and Implied Correlation.
3.1 One-factor Gaussian Copula model.
3.1.1 Finite pool homogeneous one-factor Gaussian Copula model.
3.1.2 Finite pool heterogeneous one-factor Gaussian Copula model.
3.1.3 Large pool homogeneous one-factor Gaussian Copula model.
3.2 Double-t Copula Model.
3.3 Compound correlation and base correlation.
3.4 Existence and non-monotonicity of market spread as a function of compound correlation.
3.5 Invertibility limitations of compound correlation: pre-crisis.
3.6 Base correlation.
3.7 Is base correlation a solution to the problems of compound correlation?
3.8 Can the Double-t Copula flatten the Gaussian base correlation skew?
3.9 Summary on implied correlation.
4 Consistency across Capital Structure: Implied Copula.
4.1 Calibration of Implied Copula.
4.2 Two-stage regularization.
4.3 Summary of considerations around Implied Copula.
5 Consistency across Capital Structure and Maturities: Expected Tranche Loss.
5.1 Index and tranche NPV as a function of ETL.
5.2 Numerical results.
5.3 Summary on Expected (Equity) Tranche Loss.
6 A Fully Consistent Dynamical Model: Generalized-Poisson Loss Model.
6.1 Loss dynamics.
6.2 Model limits.
6.3 Model calibration.
6.4 Detailed calibration procedure.
6.5 Calibration results.
7 Application to More Recent Data and the Crisis.
7.1 Compound correlation in-crisis.
7.2 Base correlation in-crisis.
7.3 Implied Copula in-crisis.
7.4 Expected Tranche Loss surface in-crisis.
7.4.1 Deterministic piecewise constant recovery rates.
7.5 Generalized-Poisson Loss model in-crisis.
8 Final Discussion and Conclusions.
8.1 There are more things in heaven and earth, Horatio. . . .
8.2 . . . Than are dreamt of in your philosophy.