Abstract
In this paper we look at one factor models for TABX, the tranches of ABX.HE. Both the Gaussian copula and Levy base correlation method are applied to price the tranches. We describe adaptations made to the standard recursive approach for pricing TABX. next we compare the gaussian copula formulation with the Levy base correlation method. We show that ABX.HE and TABX reveal important information when compared to the traditional subordination levels used by the rating agencies before the credit crunch. Finally we present some results obtained with our pricing methodology and we finish by showing the necessity for market participants to be more transparent on the prepayment assumptions.
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