This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Pricing And Hedging Of Cdo-Squared Tranches By Using A One Factor Lã‰Vy Model

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
FLORENCE GUILLAUME () (Department of Mathematics, K. U. Leuven, Celestijnenlaan 200 B, B-3001 Leuven, Belgium)
PHILIPPE JACOBS () (Value and Risk Management Department, KBC Group, Belgium)
WIM SCHOUTENS () (Department of Mathematics, K. U. Leuven, Celestijnenlaan 200 B, B-3001 Leuven, Belgium)
Abstract

This paper provides a comparison of the exponential copula Lévy model with the classical Gaussian copula model for the pricing of CDO-squared tranches. Several approximations of the recursive approach are considered: a full Monte Carlo approximation, a multivariate Normal approximation of the joint inner CDO loss distribution and a multivariate Poisson approximation of the joint number of defaults affecting the inner CDOs. More particularly, a sensitivity analysis is carried out for three particular days characterized by a low, medium and high value of the quoted iTraxx and CDX index spreads. Moreover, this paper features a comparison of the exponential Lévy and Gaussian Deltas under the multivariate Normal approximation for a period extended from 20 September 2007 until 13 February 2008. The Deltas are computed with respect to a weighted and unweighted version of the CDS pool as well as with respect to another CDO-squared tranche.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0219024909005397
File Format: application/pdf
File Function:
Download Restriction: Access to full text is restricted to subscribers.
File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S0219024909005397
File Format: text/html
File Function:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 12 (2009)
Issue (Month): 05 ()
Pages: 663-685
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:wsi:ijtafx:v:12:y:2009:i:05:p:663-685

Contact details of provider:
Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml

Order Information:
Email:

For technical questions regarding this item, or to correct its listing, contact: (Tai Tone Lim).

Related research
Keywords: Credit risk; CDOs-squared; collateralized debt obligations; correlation; copula; hedging;

Statistics
Access and download statistics

Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.

This page was last updated on 2009-12-9.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.