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Una contribución a la valuación de los Synthetic CDO

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  • 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
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    File URL: http://alejandria.ccm.itesm.mx/egap/documentos/2009V3A10Garcia.pdf
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    References listed on IDEAS

    as
    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 351-367, 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.).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Derivados de crédito; riesgo de crédito; collateralized debt obligation;

    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

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