Mark-to-model for cash CDOs through indifference pricing
We define a mark-to-model for cash collateralized debt obligations based on an indifference price with an exponential utility function. The risk model is driven by a one-factor Gamma process representing the cumulated default intensity of the collateral, calibrated using historical data. The risk aversion can be calibrated using liquid instruments (bonds). Using a Monte-Carlo method, we can produce cash flow distributions in accordance with the specific waterfall of the product. We then compute the indifference price using these distributions. We provide examples with comparisons with market prices.
If you experience problems downloading a file, check if you have the proper application to view it first. 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.
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.
Volume (Year): 12 (2012)
Issue (Month): 1 (September)
|Contact details of provider:|| Web page: http://www.tandfonline.com/RQUF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RQUF20|
When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:12:y:2012:i:1:p:39-48. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.