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Una Contribución a la Valuación de los Synthetic CDO

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  • García Castillo, Francisco

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    (IPAB)

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    Abstract

    The Credit Default Swap (CDS) is the most popular credit derivative and it is used as an insurance against the risk of default by a particular company, known as a reference entity. If a portfolio of debt instruments is created with a complex structure where the cash flows from such portfolio are channeled to different categories of investors, we have a collateralized debt obligation (CDO). If the CDO is formed by a portfolio of CDS it is called a Synthetic CDO. The synthetic CDO transfers to market the credit risk of the portfolio. In this paper I describe the synthetic CDO valuation process and I propose an algorithm in order to get the fair price of tranches that do not require Monte Carlo simulation or Copulas, even with different notional principal values.

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    File URL: http://www.csf.itesm.mx/egade/publicaciones/articulos/Francisco_Garcia.pdf
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    Bibliographic Info

    Article provided by Tecnológico de Monterrey, Campus Ciudad de México in its journal Revista de Administración, Finanzas y Economía (Journal of Management, Finance and Economics).

    Volume (Year): 3 (2009)
    Issue (Month): 2 ()
    Pages: 60-73

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    Handle: RePEc:ega:rafega:200910

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    Related research

    Keywords: Derivados de crédito; riesgo de crédito; collateralized debt obligation.;

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    1. Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-67, May.
    2. Michael S. Gibson, 2004. "Understanding the risk of synthetic CDOs," Finance and Economics Discussion Series 2004-36, Board of Governors of the Federal Reserve System (U.S.).
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