In this paper we present a model which is, by construction, consistent with observed market quotes for standard CDO tranches. The model is closely related to implied tree methods which can be used for valuing exotic equity derivatives consistent with observed market quotes for vanilla European call and put options. Rather than modelling default events for each name in the basket, the total bask...

Expected future volatility plays a central role in finance theory. Consequently, accurate estimation of this parameter is crucial to meaningful financial decision-making. Researchers generally on the past behavior of asset prices to estimate volatility, relating movements in volatility value with prior volatility and/or variables in the investors' information set. These procedures are by nature...