---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 01/26/2001 
05:07 PM ---------------------------


Vasant Shanbhogue
01/23/2001 09:08 AM
To: Vince J Kaminski/HOU/ECT@ECT, Tanya Tamarchenko/HOU/ECT@ECT
cc:  
Subject: Risk article

FYI.

---------------------- Forwarded by Vasant Shanbhogue/HOU/ECT on 01/23/2001 
09:06 AM ---------------------------


Ben Parsons
01/23/2001 08:51 AM
To: Nigel Price/LON/ECT@ECT, George Albanis/LON/ECT@ECT, Markus 
Fiala/LON/ECT@ECT, Jean-Sebastien Fontaine/Corp/Enron@Enron, Katherine 
Siig/EU/Enron@Enron, Amitava Dhar/Corp/Enron@ENRON, Vasant 
Shanbhogue/HOU/ECT@ECT, Ilan Hershkovitz/LON/ECT@ECT, Greg 
Hedger/LON/ECT@ECT, David A Wall/Risk Mgmt/LON/ECT@ECT, Simon 
Brooks/LON/ECT@ECT
cc: Bryan Seyfried/LON/ECT@ECT, Steven Leppard/LON/ECT@ECT 
Subject: Risk article

Everyone should read the attached Risk article about calculating def probs 
from CDS quotes. 

Amazingly it is in pretty close agreement with our own methodology for both 
CDS valuation and reverse engineering def probs. The only extension in the 
reverse engineering is that instead of linearly interpolating CDS quotes, 
they propose minimising an error measure based on 'smoothness' of def prob 
curve and difference between model and market prices. 

What is also amazing is the fact that this article has been published in 
Risk, given that it is essentially the same as my credit pricing paper, plus 
one excellent idea. Given extra time, resources and brainpower, there is no 
reason why we shouldn't have similar work published ourselves.

Ben

(thanks Steve for pointing this article out)
---------------------- Forwarded by Ben Parsons/LON/ECT on 23/01/2001 14:40 
---------------------------


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