IDEAS home Printed from https://ideas.repec.org/a/ega/rafega/200910.html

Una contribución a la valuación de los Synthetic CDO

Author

Listed:
  • Francisco García Castillo

    (Instituto Tecnológico y de Estudios Superiores de Monterrey)

Abstract

The Credit Default Swap (CDS) is the most popular credit derivative and it is used as 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 for the fair pricing of tranches, which does not require Monte Carlo simulation or Copulas, even with different notional principal values

Suggested Citation

  • Francisco García Castillo, 2009. "Una contribución a la valuación de los Synthetic CDO," Revista de Administración, Finanzas y Economía (Journal of Management, Finance and Economics), Tecnológico de Monterrey, Campus Ciudad de México, vol. 3(2), pages 60-73.
    • Handle: RePEc:ega:rafega:200910
    as

    Download full text from publisher

    File URL: http://alejandria.ccm.itesm.mx/egap/documentos/2009V3A10Garcia.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.).
    2. 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 351-367, May.
    3. X. Burtschell & Jonathan Gregory & Jean-Paul Laurent, 2009. "A Comparative Analysis of CDO Pricing Models under the Factor Copula Framework," Post-Print hal-03676448, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abel Elizalde, 2006. "Credit Risk Models IV: Understanding and Pricing CDOs," Working Papers wp2006_0608, CEMFI.
    2. Kijima, Masaaki & Motomiya, Shin-ichi & Suzuki, Yoichi, 2010. "Pricing of CDOs based on the multivariate Wang transform," Journal of Economic Dynamics and Control, Elsevier, vol. 34(11), pages 2245-2258, November.
    3. Hu, May & Park, Jason, 2019. "Valuation of collateralized debt obligations: An equilibrium model," Economic Modelling, Elsevier, vol. 82(C), pages 119-135.
    4. Mr. Andre O Santos & Mr. Jorge A Chan-Lau, 2006. "Currency Mismatches and Corporate Default Risk: Modeling, Measurement, and Surveillance Applications," IMF Working Papers 2006/269, International Monetary Fund.
    5. Kau, James B. & Keenan, Donald C., 1999. "Patterns of rational default," Regional Science and Urban Economics, Elsevier, vol. 29(6), pages 765-785, November.
    6. Gady Jacoby & Chuan Liao & Jonathan A. Batten, 2007. "A Pure Test for the Elasticity of Yield Spreads," The Institute for International Integration Studies Discussion Paper Series iiisdp195, IIIS.
    7. Andrey Krishenik & Andreea Minca & Johannes Wissel, 2015. "When do creditors with heterogeneous beliefs agree to run?," Finance and Stochastics, Springer, vol. 19(2), pages 233-259, April.
    8. Gordian Rättich & Kim Clark & Evi Hartmann, 2011. "Performance measurement and antecedents of early internationalizing firms: A systematic assessment," Working Papers 0031, College of Business, University of Texas at San Antonio.
    9. de Andrade, Fabio Wendling Muniz & Thomas, Lyn, 2007. "Structural models in consumer credit," European Journal of Operational Research, Elsevier, vol. 183(3), pages 1569-1581, December.
    10. Bégin, Jean-François & Boudreault, Mathieu & Gauthier, Geneviève, 2017. "Firm-specific credit risk estimation in the presence of regimes and noisy prices," Finance Research Letters, Elsevier, vol. 23(C), pages 306-313.
    11. Zhijian (James) Huang & Yuchen Luo, 2016. "Revisiting Structural Modeling of Credit Risk—Evidence from the Credit Default Swap (CDS) Market," JRFM, MDPI, vol. 9(2), pages 1-20, May.
    12. Fenglong Guo, 2025. "Pricing Vulnerable Options With Variance Gamma Systematic and Idiosyncratic Factors by Laplace Transform Inversion," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(1), pages 47-76, January.
    13. Francois, Pascal & Hubner, Georges, 2004. "Credit derivatives with multiple debt issues," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 997-1021, May.
    14. Bongaerts, Dion & Charlier, Erwin, 2009. "Private equity and regulatory capital," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1211-1220, July.
    15. Jyh-Bang Jou & Tan Lee, 2004. "The agency problem, investment decision, and optimal financial structure," The European Journal of Finance, Taylor & Francis Journals, vol. 10(6), pages 489-509.
    16. Hilscher, Jens & Raviv, Alon, 2014. "Bank stability and market discipline: The effect of contingent capital on risk taking and default probability," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 542-560.
    17. Christopher L. Culp & Yoshio Nozawa & Pietro Veronesi, 2014. "Option-Based Credit Spreads," NBER Working Papers 20776, National Bureau of Economic Research, Inc.
    18. Amelie Hüttner & Matthias Scherer, 2016. "A note on the valuation of CDS options and extension risk in a structural model with jumps," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-16, June.
    19. Thomas R. Hurd & Zhuowei Zhou, 2011. "Two-factor capital structure models for equity and credit," Papers 1110.5846, arXiv.org.
    20. Peter Spencer, 2013. "Modeling US bank CDS spreads during the Global Financial Crisis with a deferred filtration pricing model," Discussion Papers 13/18, Department of Economics, University of York.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ega:rafega:200910. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: José Antonio Núñez (email available below). General contact details of provider: https://edirc.repec.org/data/emitemx.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.