A measure of the responsiveness (of equity value or bond loss- i.e., equity tranche or bond tranche in a portfolio) to small changes in the probability of default (POD). It captures the impact of one basis point (1 bp) increase in that probability. More specifically, default sensitivity reflects the mark-to-market change in the value of a respective tranche (in a credit derivative) in response to default by one of the credits (where the defaulted credit is one that has the highest impact on the tranche).
Default sensitivity is analogous to DV01 and spread01, but it is unique in the sense that it is determined in view of the probability of default (the key factor to which the value of a tranche is related).
