CDO term structure modelling with Levy processes and the relation to market models
This paper considers the modelling of collateralized debt obligations (CDOs). We propose a top-down model via forward rates generalizing Filipovi\'c, Overbeck and Schmidt (2009) to the case where the forward rates are driven by a finite dimensional L\'evy process. The contribution of this work is twofold: we provide conditions for absence of arbitrage in this generalized framework. Furthermore, we study the relation to market models by embedding them in the forward rate framework in spirit of Brace, Gatarek and Musiela (1997).
|Date of creation:||Jul 2010|
|Date of revision:||Dec 2010|
|Publication status:||Published in International Journal of Theoretical and Applied Finance, 15 (1), 2012|
|Contact details of provider:|| Web page: http://arxiv.org/|
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