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Examples and Applications of Closed-Form CDO Pricing
Jan 1, 2010
We describe a model for closed-form CDO pricing based on conditional independence in a onefactor model. We use the model to follow a sample deal over an 18-month period of declining credit quality, and give examples to show how changes in the correlations and spreads of the collateral pool affect individual tranches. We point out implications of our results for risk managers.
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