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Answered 2007-06-28 07:41:58

The main references are:

  1. David X. Li "Pricing Basket Credit Derivatives"
  2. Hull-White "Credit Default Swap II"
However, pricing a multiname credit derivative product basically boils down to efficiently implementing a MonteCarlo simulation for correlated random variables. The main decision to be taken is how to model correlations. A Gaussian copula is at the moment the market standard. Most practioners use it, although many of them dislike it. Research in this field is still at a very preliminary stage. The fact is that the Gaussian copula model is easy to calibrate and allows for straightforward comparative statics (e.g. calculation of the delta) while other more realistic and complicated models (such as Darrel Duffies' affine models) are still very difficult to calibrate and use.
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