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Implied correlation
The level of default correlation implied by the price of a synthetic CDO, index tranche or nth-to-default basket. Correlation is the parameter which explains why the spread of a tranche can move even when the average spread of its reference portfolio remains unchanged (or vice versa). Therefore correlation can be implied from the price of tranches (or nth-to-defaults) relative to underlying spreads in the same way that volatility is implied from the price of options relative to their underlyings.
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