What is the tranche expected loss

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Consider a [0%, 5%] super senior tranche, and a index CDS spread of 400 bps for 5 years maturity assuming 0% recovery and 0% interest rates. We'll be pricing this tranche using one factor gaussian copula.

a) What is the tranche expected loss?

b) What is the effect of correlation for equity tranche expected loss and par CDS spread?use 1%, 10%, 20%, 30% gaussian copula correlation and compute the par spread and expected loss.

c) How do you hedge the super senior tranche with the index?

Reference no: EM131332292

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