We present the SPA framework, a novel approach to the modeling of the dynamics of portfolio default losses. In this framework, models are specified by a two-layer process. The first layer models the dynamics of portfolio loss distributions in the absence of information about default times. This...

Exponential Lévy processes can be used to model the evolution of various financial variables such as FX rates, stock prices, and so on. Considerable efforts have been devoted to pricing derivatives written on underliers governed by such processes, and the corresponding implied volatility...