  BSLP is a two-dimensional dynamic model of interacting portfolio-level loss
and spread (more exactly, loss intensity) processes. The model is similar to
the top-down HJM-like frameworks developed by Schonbucher (2005) and
Sidenius-Peterbarg-Andersen (SPA) (2005), however is constructed as a
Markovian, short-rate intensity model. This property of the model enables fast
lattice methods for pricing various portfolio credit derivatives such as
tranche options, forward-starting tranches, leveraged super-senior tranches
etc. A non-parametric model specification is used to achieve nearly perfect
calibration to liquid tranche quotes across strikes and maturities. A
non-dynamic version of the model obtained in the zero volatility limit of
stochastic intensity is useful on its own as an arbitrage-free interpolation
model to price non-standard index tranches off the standard ones.
