Paper:Toric models for correlated defaults

From FinMath

Paper presented at AMS 2008.

[edit] Abstract

We propose a new and simple model for correlated defaults. Probabilistic analysis and parameter estimation procedure is provided via results from geometry. Statistical analysis shows promising results in correcting the correlation smiles and in exhibiting heavy tails in default probability distribution across trenches, especially in light of copula models.

Also see AMS 2008