Systematic and multifactor risk models revisited

Systematic and multifactor risk models are revisited via methods which were already successfully developed in signal processing and in automatic control. The results, which bypass the usual criticisms on those risk modeling, are illustrated by several successful computer experiments.Comment: First Paris Financial Management Conference, Paris : France (2013

Pricing tranched credit products with generalized multifactor models

The market for tranched credit products (CDOs, Itraxx tranches) is one of the fastest growing segments in the credit derivatives industry. However, some assumptions underlying the standard Gaussian onefactor pricing model (homogeneity, single factor, Normality), which is the pricing standard widely used in the industry, are probably too restrictive. In this paper we generalize the standard model by means of a two by two model (two factors and two asset classes). We assume two driving factors (business cycle and industry) with independent tStudent distributions, respectively, and we allow the model to distinguish among portfolio assets classes. In order to illustrate the estimation of the parameters of the model, an empirical application with Moody's data is also included