Post by shantiacquilar on Sept 29, 2009 22:13:22 GMT 4
Pricing and Hedging of CDOs: A Top Down Approach
Damir Filipovic
Vienna Institute of Finance; University of Vienna
Thorsten Schmidt
Chemnitz University of Technology
September 6, 2009
Abstract:
This paper considers the pricing and hedging of collateralized debt obligations (CDOs). CDOs are complex derivatives on a pool of credits which we choose to analyse in the top down model proposed in Filipovic et al. (2009). We reflect on the implied forward rates and bring them in connection with the top-down framework in Lipton and Shelton (2009) and Schonbucher (2005). Moreover, we derive variance-minimizing hedging strategies for hedgeing single tranches with the full index. The hedging strategies are given for the general case. We compute them also explicitly for a parsimonious one-factor affine model.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1472942_code338317.pdf?abstractid=1472942&mirid=3
Damir Filipovic
Vienna Institute of Finance; University of Vienna
Thorsten Schmidt
Chemnitz University of Technology
September 6, 2009
Abstract:
This paper considers the pricing and hedging of collateralized debt obligations (CDOs). CDOs are complex derivatives on a pool of credits which we choose to analyse in the top down model proposed in Filipovic et al. (2009). We reflect on the implied forward rates and bring them in connection with the top-down framework in Lipton and Shelton (2009) and Schonbucher (2005). Moreover, we derive variance-minimizing hedging strategies for hedgeing single tranches with the full index. The hedging strategies are given for the general case. We compute them also explicitly for a parsimonious one-factor affine model.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1472942_code338317.pdf?abstractid=1472942&mirid=3