Publication
Title
Pricing and hedging of CDO-squared tranches by using a one factor Lévy model
Author
Abstract
This paper provides a comparison of the exponential copula Lévy model with the classical Gaussian copula model for the pricing of CDO-squared tranches. Several approximations of the recursive approach are considered: a full Monte Carlo approximation, a multivariate Normal approximation of the joint inner CDO loss distribution and a multivariate Poisson approximation of the joint number of defaults affecting the inner CDOs. More particularly, a sensitivity analysis is carried out for three particular days characterized by a low, medium and high value of the quoted iTraxx and CDX index spreads. Moreover, this paper features a comparison of the exponential Lévy and Gaussian Deltas under the multivariate Normal approximation for a period extended from 20 September 2007 until 13 February 2008. The Deltas are computed with respect to a weighted and unweighted version of the CDS pool as well as with respect to another CDO-squared tranche.
Language
English
Source (journal)
International journal of theoretical and applied finance. - Singapore
Publication
Singapore : 2009
ISSN
0219-0249
Volume/pages
12:5(2009), p. 663-685
Full text (publisher's version - intranet only)
UAntwerpen
Faculty/Department
Publication type
Subject
External links
Record
Identification
Creation 11.03.2014
Last edited 10.12.2015