CDO Surfaces Dynamics
Modelling the dynamics of credit derivatives is a challenging task in finance and economics. The recent crisis has shown that the standard market models fail to measure and forecast financial risks and their characteristics. This work studies risk of collateralized debt obligations (CDOs) by investigating the evolution of tranche spread surfaces and base correlation surfaces using a dynamic semiparametric factor model (DSFM). The DSFM offers a combination of flexible functional data analysis and dimension reduction methods, where the change in time is linear but the shape is nonparametric. The study provides an empirical analysis based on iTraxx Europe tranches and proposes an application to curve trading strategies. The DSFM allows us to describe the dynamics of all the tranches for all available maturities and series simultaneously which yields better understanding of the risk associated with trading CDOs and other structured products.
|Date of creation:||Jul 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://sfb649.wiwi.hu-berlin.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
- Szymon Borak & Wolfgang Härdle & Enno Mammen & Byeong U. Park, 2007.
"Time Series Modelling with Semiparametric Factor Dynamics,"
SFB 649 Discussion Papers
SFB649DP2007-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Park, Byeong U. & Mammen, Enno & HÃ¤rdle, Wolfgang & Borak, Szymon, 2009. "Time Series Modelling With Semiparametric Factor Dynamics," Journal of the American Statistical Association, American Statistical Association, vol. 104(485), pages 284-298.
- Härdle, Wolfgang Karl & Hautsch, Nikolaus & Mihoci, Andrija, 2009.
"Modelling and forecasting liquidity supply using semiparametric factor dynamics,"
CFS Working Paper Series
2009/18, Center for Financial Studies (CFS).
- Härdle, Wolfgang Karl & Hautsch, Nikolaus & Mihoci, Andrija, 2012. "Modelling and forecasting liquidity supply using semiparametric factor dynamics," Journal of Empirical Finance, Elsevier, vol. 19(4), pages 610-625.
- Wolfgang Karl HÃ¤rdle & Nikolaus Hautsch & Andrija Mihoci, 2009. "Modelling and Forecasting Liquidity Supply Using Semiparametric Factor Dynamics," SFB 649 Discussion Papers SFB649DP2009-044, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Enzo Giacomini & Wolfgang Härdle & Volker Krätschmer, 2008.
"Dynamic Semiparametric Factor Models in Risk Neutral Density Estimation,"
SFB 649 Discussion Papers
SFB649DP2008-038, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Enzo Giacomini & Wolfgang Härdle & Volker Krätschmer, 2009. "Dynamic semiparametric factor models in risk neutral density estimation," AStA Advances in Statistical Analysis, Springer, vol. 93(4), pages 387-402, December.
- Koopman, Siem Jan & Lucas, André & Schwaab, Bernd, 2012.
"Dynamic factor models with macro, frailty and industry effects for US default counts: the credit crisis of 2008,"
Working Paper Series
1459, European Central Bank.
- Siem Jan Koopman & AndrÃ© Lucas & Bernd Schwaab, 2012. "Dynamic Factor Models With Macro, Frailty, and Industry Effects for U.S. Default Counts: The Credit Crisis of 2008," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(4), pages 521-532, May.
- Alena Bömmel & Song Song & Piotr Majer & Peter Mohr & Hauke Heekeren & Wolfgang Härdle, 2014. "Risk Patterns and Correlated Brain Activities. Multidimensional Statistical Analysis of fMRI Data in Economic Decision Making Study," Psychometrika, Springer, vol. 79(3), pages 489-514, July.
- Göran Kauermann & Tatyana Krivobokova & Ludwig Fahrmeir, 2009. "Some asymptotic results on generalized penalized spline smoothing," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 71(2), pages 487-503.
- Xueli Liu & Hans-Georg Muller, 2004. "Functional Convex Averaging and Synchronization for Time-Warped Random Curves," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 687-699, January.
- Christian Gourieroux & Joanna Jasiak, 1999.
"Dynamic Factor Models,"
99-08, Centre de Recherche en Economie et Statistique.
- Matthias R. Fengler & Wolfgang K. H�rdle & Enno Mammen, 0. "A semiparametric factor model for implied volatility surface dynamics," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 5(2), pages 189-218.
- Hallin, Marc & Liska, Roman, 2007. "Determining the Number of Factors in the General Dynamic Factor Model," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 603-617, June.
When requesting a correction, please mention this item's handle: RePEc:hum:wpaper:sfb649dp2013-032. 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: (RDC-Team)
If references are entirely missing, you can add them using this form.