Managing Synthetic CDO Tranches using Base Correlations
Managing Synthetic CDO Tranches using Base Correlations
Managing Synthetic CDO Tranches using Base Correlations
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Implied values: <strong>Base</strong> correlation of equity tranche<br />
CDX.NA.IG S8 index, 3% base correlation<br />
90<br />
0.3<br />
Index (bp)<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
0.25<br />
0.2<br />
0.15<br />
0.1<br />
<strong>Base</strong> correlation<br />
Date Index Correlation<br />
June 1 34 bp 14%<br />
July 31 76 bp 20%<br />
Aug 3 81 bp 26%<br />
20<br />
10<br />
0.05<br />
0<br />
Nov06 Jan07 Mar07 May07 Jul07 Sep07<br />
0<br />
17
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