Utilize este identificador para referenciar este registo: http://hdl.handle.net/10400.5/2559
Título: CDOs in the Light of the Current Crisis
Autor: Gaspar, Raquel M.
Schmidt, Thorsten
Palavras-chave: CDO
Shot-noise processes
affine models
Data: Jun-2008
Citação: Gaspar, Raquel M. e Thorsten Schmidt. 2008. "CDOs in the Light of the Current Crisis". Instituto Superior de Economia e Gestão – ADVANCE Working paper nº 2/2008
Relatório da Série N.º: ADVANCE Working paper;nº 2/2008
Resumo: This paper proposes a top-down model for pricing Collateralized Debt Obligation (CDOs). Our proposal is both treatable and realistic, in the sense we are able to obtain closed-form solutions to single tranche CDOs and capturing extreme credit events. We use as key ingredients the so-called (T, x)-bonds, as proposed in Filipovic, Overbeck, and Schmidt (2008), but generalize their affine specificationby including shot-noise processes. Our claim is that affine diffusions combined with shot-noise processes lead to an improved modeling of CDO spreads in comparison to existing affine jump-diffusion models. The proposed approach allows in particular for better capturing the possibility of extreme events, like the ones underlying the current crisis. We illustrate our results with a very concrete (simple) instance of our class of models. Finally, we identify the connections between the top-down and bottom-up approaches for modeling credit risk, within our class of models. Concretely, we show that even when taking a bottom-up approach the aggregate loss process would be a process of affine shot-noise type.
URI: http://hdl.handle.net/10400.5/2559
Versão do Editor: http://pascal.iseg.utl.pt/~advance/200802.pdf
Aparece nas colecções:DG - Documentos de trabalho / Working Papers
ADVANCE - Working Papers

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