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Models and the crisis The pricing and risks of synthetic CDOs

In: Proceedings of FIKUSZ 2010

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  • Ákos Gyarmati

    ()
    (Corvinus University)

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    Abstract

    We shortly discuss the mathematical modeling and its problems of one of the structured credit derivatives, the synthetic CDOs. These financial products were among the favorites prior to the crisis, and there was a general view that the mathematical models caused or at least boosted it. We focus only on the mathematical description of these derivatives, therefore our analysis concentrates purely on the problems coming directly from the model, we ignore the related practical problems. We find that not only the tools used in the modeling were inappropriate, but the principle used for pricing was also not correct in the framework of risk-neutral pricing. To our knowledge no one has highlighted these theoretical problems so far.well as loan use pattern of the members.

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    File URL: http://uni-obuda.hu/users/vecseya/RePEc/pkk/sfyr10/gyarmati.pdf
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    This chapter was published in: László Áron Kóczy (ed.) Proceedings of FIKUSZ 2010, , pages 93-110, 2010.

    This item is provided by Óbuda University, Keleti Faculty of Business and Management in its series Proceedings of FIKUSZ '10 with number 93-110.

    Handle: RePEc:pkk:sfyr10:93-110

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