Valuation of Collateralized Debt Obligations

D.S. Slepov (Russia)


CDO, default correlation, Gaussian copula, eventology, wide dependence of events, multiplicative approximation


This paper addresses the pricing of tranches of collater alized debt obligations. We first examine the one-factor Gaussian copula model that has become the market stan dard. Then we present a new approach to model paramet rically a dependence structure. Our approach is based on wide dependence theory. It allows creating an eventologi cal distribution that has different dependence structures using a 2-multiplicative approximation. Eventually, we use a numerical example to compare these models.

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