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The Pricing and Hedging of Synthetic CDOs Under the Conditional Independence Assumption

Journal of Financial Studies

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Field Value
 
Title The Pricing and Hedging of Synthetic CDOs Under the Conditional Independence Assumption
 
Creator Mi-Hsiu Chiang
Meng-Lan Yueh
An-Ping Lin
 
Description In this paper we investigate the valuation and hedging issues of synthetic collateral debt obligations (CDOs) under the conditional independence assumption. The probability bucketing method of Hull and White (2004) enables us to construct the loss distribution, and we characterize the correlation structure between defaults based on the factor-copula formalism initiated by Laurent and Gregory (2003) to arrive at a semi-analytic valuation framework. We consider risk measures that are adequate for assessing the relative risks of tranches. Efficient calculation of the hedging parameters is demonstrated, and we provide an in-depth analysis for the relevant hedging implications followed from our numerical results.
Keywords：synthetic CDOs, factor copulae, tranche Deltas, loss distributions
 
Publisher Journal of Financial Studies
財務金èžå­¸åˆŠ
 
Date 2011-03-10
 
Type —
 
Format application/pdf
 
Identifier http://www.jfs.org.tw/index.php/jfs/article/view/2011055
 
Source Journal of Financial Studies; Vol 17, No 1 (2009); 1
財務金èžå­¸åˆŠ; Vol 17, No 1 (2009); 1
 
Language —