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The way your problem description is stated, I would think you were trying to derive a FTD-pricer of sorts, for a n-th to default structure. Which would make sense because the premium/spread pricing is a coupla probability to default calculation, and is similiar to what you have described. However, your correlation calcs don't make much sense to me. Are you trying to calculate a tranche premium, and relate its changes to the underlying credits? If you are, then we are talking about a "credit delta" on the tranche delta, which really is a concept that borrows PV01 delta from equities but applies it to the fixed income space. Tranche MTM to Credit MTM for a 0.01 bps move. Obviously this approach would have transactional costs due to rebalancing, so you would use a "average delta" instead of each of the credits (i.e. the appropriate index CDX/ABX/CDOx, etc.)

<blockquote data-quote="fixedincomenyc" data-source="post: 8455" data-attributes="member: 388"><p>The way your problem description is stated, I would think you were trying to derive a FTD-pricer of sorts, for a n-th to default structure.&nbsp; Which would make sense because the premium/spread pricing is a coupla probability to default calculation, and is similiar to what you have described.&nbsp; However, your correlation calcs don&#039;t make much sense to me.&nbsp; &nbsp; Are you trying to calculate a tranche premium, and relate its changes to the underlying credits?&nbsp; If you are, then we are talking about a &quot;credit delta&quot; on the tranche delta, which really is a concept that borrows PV01 delta from equities but applies it to the fixed income space.&nbsp; Tranche MTM to Credit MTM for a 0.01 bps move.&nbsp; Obviously this approach would have transactional costs due to rebalancing, so you would use a &quot;average delta&quot; instead of each of the credits (i.e. the appropriate index CDX/ABX/CDOx, etc.)</p></blockquote><p></p>

[QUOTE="fixedincomenyc, post: 8455, member: 388"] The way your problem description is stated, I would think you were trying to derive a FTD-pricer of sorts, for a n-th to default structure. Which would make sense because the premium/spread pricing is a coupla probability to default calculation, and is similiar to what you have described. However, your correlation calcs don't make much sense to me. Are you trying to calculate a tranche premium, and relate its changes to the underlying credits? If you are, then we are talking about a "credit delta" on the tranche delta, which really is a concept that borrows PV01 delta from equities but applies it to the fixed income space. Tranche MTM to Credit MTM for a 0.01 bps move. Obviously this approach would have transactional costs due to rebalancing, so you would use a "average delta" instead of each of the credits (i.e. the appropriate index CDX/ABX/CDOx, etc.) [/QUOTE]

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