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Relating Top-Down With Bottom-Up Approaches In The Evaluation Of Abs With Large Collateral Pools

Author

Listed:
  • NICOLAS DIENER

    (Barclays Capital, 745 Seventh Avenue, New York, NY 10019, USA)

  • ROBERT JARROW

    (Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853, USA;
    Kamakura Corporation, USA)

  • PHILIP PROTTER

    (Statistics Department, Columbia University, New York, NY 10027, USA)

Abstract

This paper uses a conditional law of large numbers and a conditional central limit theorem to provide simplified asymptotic valuation formulas for credit derivatives on baskets, including synthetic and cash-flow CDOs. In particular, approximate pricing procedures are provided for synthetic and cash-flow CDOs. In the process, this paper also clarifies the relation between the "top-down" and "bottom-up" approaches for pricing credit derivatives.

Suggested Citation

  • Nicolas Diener & Robert Jarrow & Philip Protter, 2012. "Relating Top-Down With Bottom-Up Approaches In The Evaluation Of Abs With Large Collateral Pools," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 15(02), pages 1-20.
    • Handle: RePEc:wsi:ijtafx:v:15:y:2012:i:02:n:s0219024912500112
    DOI: 10.1142/S0219024912500112
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    Cited by:

    1. Justin Sirignano & Kay Giesecke, 2019. "Risk Analysis for Large Pools of Loans," Management Science, INFORMS, vol. 65(1), pages 107-121, January.

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