Collateralized Debt Obligation - Science topic

In this paper, we develop Stein’s method for binomial approximation using the stop-loss metric that allows one to obtain a bound on the error term between the expectation of call functions. We obtain the results for a locally dependent collateralized debt obligation (CDO), under certain conditions on moments. The results are also exemplified for an...

This paper provides an overview of emerging market collateralized debt obligations (CDOs), including the capital structure, the cash-flow and arbitrage motivations behind CDOs, and the rating methodologies of CDOs. From this basic understanding, the paper progresses to explore the sovereign, industry and concentration risks, as well as opportunitie...

Collateralized debt obligation (CDO) has been one of the most commonly used structured financial products and is intensively studied in quantitative finance. By setting the asset pool into different tranches, it effectively works out and redistributes credit risks and returns to meet the risk preferences for different tranche investors. The copula...

In our study we have studied what is Collateralized Debt Obligation and understand how does Collateralized Debt Obligation works and its different types of tranches. Types of Collateralized Debt Obligation and to understand the drawbacks and advantages of Collateralized Debt Obligation, How Collateralized Debt Obligation grew the economy and its ro...

A critical aspect in the valuation and risk management of multi-name credit derivatives is the modeling of the dependence among sources of credit risk. The dependence modeling poses difficulties in the pricing of a multi-name credit derivatives, in the estimation of the value-at-risk of a portfolio, or in the pricing of some other basket credit der...

This study deals with the pricing and hedging of single-tranche collateralized debt obligations (STCDOs). We specify an affine two-factor model in which a catastrophic risk component is incorporated. Apart from being analytically tractable, this model has the feature that it captures the dynamics of super-senior tranches, thanks to the catastrophic...

Collateral debt obligation (CDO) has been one of the most commonly used structured financial products and is intensively studied in quantitative finance. By setting the asset pool into different tranches, it effectively works out and redistributes credit risks and returns to meet the risk preferences for different tranche investors. The copula mode...

In analyzing complex products, this study selected the company Goldman Sachs and one of its product offerings, the synthetic collateralized debt obligation (synthetic CDO). The study later analyzed the ethical implications of providing such a complex product to customers. A review of the literature indicates that researchers identified this product...

O artigo objetiva analisar como os instrumentos e estruturas financeiras permitiram que o setor mais sólido e representativo dos Estados Unidos da América gerasse uma crise sem precedentes. As origens da crise imobiliária de 2008 remontam a criação e difusão dos títulos hipotecários (mortgage backed securities) na mesa do Salomon Brothers nos anos...

This case study examines five dimensions of the 2007–2009 financial crisis in the United States: (1) the devastating effects of the financial crisis on the U.S. economy, including unparalleled unemployment, massive declines in gross domestic product (GDP), and the prolonged mortgage foreclosure crisis; (2) the multiple causes of the financial crisi...

Despite the scholarly attention given to the causes of the Financial Crisis 2007-2009, there has been no research on the mundane organisation of the CDO (Collateralized Debt Obligations) market. By studying connections between supply-side actors, our paper examines structural developments in the CDO market. We treat the CDO as a network product, th...

The Asian Financial Crisis of (1997) underlined the fault lines of unfettered flow of hot money, i.e. foreign institutional investments (FII) in triggering fund outflow, unemployment and economic recession. The US subprime crisis (2007-08) reiterated the uncertainty associated with foreign investment in dubious financial instruments like Collateral...

During the past few years, in the recent post-crisis aftermath, global asset managers are constantly searching new ways to optimize their investment portfolios while financial and banking institutions around the world are exploring new alternatives to better secure their financing and refinancing demands altogether with the enhancement of their ris...

During the past few years, in the recent post-crisis aftermath, global asset managers are constantly searching new ways to optimize their investment portfolios while financial and banking institutions around the world are exploring new alternatives to better secure their financing and refinancing demands altogether with the enhancement of their ris...

Market of financial derivatives in Croatia as one of typical post-transition country is less developed then in other financial developed markets. Authors tried to explain discrepancy in different financial markets. The reasons for this discrepancy could be found in lack of knowledge about financial industry in general, but also in poor knowledge ab...

Prediction of Mortgage Market Development through Factors Obtained in a Scoring Model Ing. David Mareš Abstract We currently focus on the stability of our banks in Europe and try to find out whether our European banks may be endangered the same way American banks were and whether the situation on the mortgage market may repeat itself in our countr...

A database-driven multi-agent model has been developed with automated access to US bank level Federal Deposit Insurance Corporation (FDIC) Call Reports, which yield data on balance sheet and o balance sheet activity, respectively, in Residential Mortgage Backed Securities (RMBS) and Credit Default Swaps (CDS). The simultaneous accumulation of RMBS...

This article analyses collateralized debt obligations (CDOs), complex securities that were at the heart of the recent financial crisis. The difficulties of analysing these securities are considered, and it is argued that the increasing complexity of CDOs that repackaged mortgage-backed securities outpaced the returns available to investors, and the...

In this article, we provide a ‘road map’ for teaching the global economic crisis (the Crisis hereafter) sociologically, using Kindleberger’s schema of financial crises. The causes of the Crisis are often associated with financial and economic technicalities, and we provide readers who are unfamiliar with the jargon of Collateralized Debt Obligation...

Collateralized Debt Obligations are not as widely used nowadays as they were before 2007 Subprime crisis. Nonetheless there remains an enthralling challenge to optimize cash flows associated with synthetic CDOs. A Gaussian-based model is used here in which default correlation and unconditional probabilities of default are highlighted. Then numerous...

Dans le cadre de notre recherche portant sur les risques spéculatifs en finance islamique, il y a eu une étape incontournable à traiter qui se rapportait au système financier classique. Il a fallu déterminer les éléments majeurs qui ont conduit à l’instabilité systémique du système actuel et regrouper ces facteurs de la crise en catégories (la BRI...

Credit derivatives played an important role in the financial market events of 2008-2009, usually referred to as the 'Credit Crisis'. The US Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 as a comprehensive response to the issues identified as causal in the Credit Crisis. Collateralized Debt Obligations and Cr...

This chapter outlines the reduced form approach to the valuation of credit default swaps and collateralized debt obligations. We review again the lack of trading volume in single name credit default swaps. We outline step by step procedures for the valuation of any complex credit portfolio, with specific applications to CDOs. We provide a worked ex...

In recent years, credit derivatives have revolutionized the trad-ing and management of credit risk and have turned into an important tool for transferring and hedging this kind of risk. Credit Default Swaps (CDSs) and Collateralized Debt Obligations (CDOs) are among the well-known credit derivatives whos pricing poses challenging problems to the fi...

The aim of this paper is to shed light on Collateralized Debt Obligation (CDO) valuation based on data before and during the 2007-2009 global turmoil. We present the One Factor Gaussian Copula Model and examine five hypotheses regarding CDO sensitivity to entry parameters. For our modelling we used data of the CDX NA IG 5Y V3 index from 20 Septembe...

Synthetic Collateralized Debt Obligations (CDOs) were among the driving forces of the rapid growth of the market for credit derivatives in recent years. Possibly the most popular model beside the Gaussian copula for pricing CDO tranches is the Random-Factor-Loading-Model of Andersen and Sidenius (2005). We extend this model by allowing more than tw...

Equity Default Swaps (EDSs) are credit-like instruments that were first introduced in 20039. JPMorgan™, Equity Default Swaps. European Equity Derivatives, 2003 (JPMorgan™: London) View all references. EDSs are deep out of the money digital put options that pay out a fixed amount (recovery rate) upon the stock price hitting a pre-set low barrier. Th...

Monte Carlo simulation and a semi-analytical method are used to value a basket default swap and an homogeneous Collateralized Debt Obligation (CDO). The semianalytical technique is based on the one factor copula model proposed by J.P. Laurent and J. Gregory [1]. We study the properties of a CDO with Monte Carlo and compare the spread calculation wi...

La spiegazione mainstream della crisi economi-ca tuttora in atto si fonda sullo scoppio della bolla im-mobiliare negli Stati Uniti iniziato alla fine del 2006. La disponibilità di credito a tassi d'interesse «eccezio-nalmente bassi» (Blanchard, 2010, Capitolo 28) du-rante il periodo 2000-2006 ha determinato un costan-te aumento nei prezzi degli imm...

We explore the possibilities of importance sampling in the Monte Carlo pricing of a structured credit derivative referred to as Collateralized Debt Obligation (CDO). Modeling a CDO contract is challenging, since it depends on a pool of (typically about 100) assets, Monte Carlo simulations are often the only feasible approach to pricing. Variance re...

Collateralized debt obligations, which are are securities with payoffs that are tied to the cash flows in a portfolio of defaultable assets such as corporate bonds, play a significant role in the financial crisis that has spread throughout the world. Insufficient capital provisioning due to flawed and overly optimistic risk assessments is at the ce...

Global macroeconomic imbalance combined with deregulation of US banks and increasing US real estate prices formed the basis for aggressive growth in worldwide trading of so called Collateralized Debt Obligations (CDO), i.e. similar loans pooled to create a financial derivative that can be bought or sold. The CDOs consisted mainly of prime and subpr...

We consider Collateralized Debt Obligations (CDOs). We analyze their valuation, both pre- and in-crisis, with the Generalized Poisson Loss (GPL) model. GPL is an arbitrage-free dynamic loss model capable of calibrating all the tranches for all the maturities at the same time. Alternative tranche analysis through the implied copula framework or via...

Using the criteria of the rating agencies, the authors tested how wide the AAA tranches created from residential mortgages can be. They found that the AAA ratings assigned to ABSs were not totally unreasonable but that the AAA ratings assigned to tranches of Mezz ABS CDOs cannot be justified.

Culture has been consistently ignored in current search for the roots of the credit crisis. Cold data on the volume of Credit Default Swaps (CDS's) or Collateral Debt Obligations (CDO's) convey a harsh economic reality but little in terms of the cultural roots of the decisions that have lead to these ominous events. This article provided an attempt...

The global financial crisis originated from the United States of America. During booming years when interest rates were low, there was a great demand for houses. Hence commercial banks advanced housing loans to people with low credit worthiness, on the assumption that housing prices would continue to rise. Later, financial institutions repackaged t...

This paper aims to reveal the mechanism of Collateralized Debt Obligations (CDOs) and how CDOs extend the current global financial crisis. We first introduce the concept of CDOs and give a brief account of the development of CDOs. We then explicate the mechanism of CDOs within a concrete example with mortgage deals and we outline the evolution of t...

This paper aims to reveal the mechanism of Collateralized Debt Obligations (CDOs) and how CDOs extend the current global financial crisis. We first introduce the concept of CDOs and give a brief account of the de-velopment of CDOs. We then explicate the mechanism of CDOs within a concrete example with mortgage deals and we outline the evolution of...

The most popular approach to synthetic collateralized debt obligations (CDO) pricing uses factor models in the conditional independence framework, which were first introduced by Vasicek to estimate the loan loss distribution of a pool of loans. Efficient methods for evaluating the loss distributions of synthetic CDO's are important for both pricing...

We present a new model of credit events such as rating changes as well as defaults for risk analyses of some portfolio credit derivatives. The framework of our model is based on a so-called top-down approach. To be precise, we firstly pay attention to modeling the point process of each type of credit events in the whole economy with a self-exciting...

The emergence of Credit Default Swap (CDS) indices and corresponding credit risk transfer markets with high liquidity and narrow bid-ask spreads has created standard benchmarks for market credit risk and correlation against which portfolio credit risk models can be calibrated. Integrated risk management for correlation dependent credit derivatives,...

Modeling the portfolio credit risk is one of the crucial issues of the last years in the financial problems. We propose the valuation model of Collateralized Debt Obligations based on a one- and two-parameter copula and default intensities estimated from market data. The presented method is used to reproduce the spreads of the iTraxx Europe tranche...

We discuss in detail the mapping methodology for the valuation of bespoke single tranche Collateralized Debt Obligations in the context of the stochastic recovery gaussian factor modelling framework recently proposed by Amraoui and Hitier (2008).

Multiname default modeling is crucial in the context of pricing credit derivatives such as Collaterized Debt Obligations (CDOs). We consider here a simple reduced form approach for multiname defaults based on the Vasicek or Ornstein-Uhlenbeck model for the hazard rates of the underlying names. We analyze the impact of volatility time scales on the...

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 Schmid...

We propose an Interacting Particle System method to accurately cal-culate the distribution of the losses in a highly dimensional portfolio by using a selection and mutation algorithm. We demonstrate the efficiency of this method for computing rare default probabilities on a toy model for which we have explicit formulas. This method has the advantag...

In this paper, we address the crucial problems of parameters estimation of Collateralized Debt Obligation (CDO). We present a methodology for fair spread estimation of reconstituted (CDO) from European market data. A fundamental part of the pricing framework is the estimation of default probabilities and the structure of dependency. We present a co...

Many of the current difficulties in residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) can be attributed to a misapplication of agency ratings. Changes in mortgage origination and servicing make it difficult to evaluate the risk of RMBS and CDOs. We show that the big three ratings agencies are often confronted...

This paper deals with the impact of structure of dependency and the choice of procedures for rare-event simulation on the pricing of multi-name credit derivatives such as nth to default swap and Collateralized Debt Obligations (CDO). The correlation between names defaulting has an effect on the value of the basket credit derivatives. We present a c...

The mortgage-backed securities (MBS) market has experienced significant changes over the past couple of years. Non-agency ("private label") securities, which are not guaranteed by the government or the government sponsored enterprises, now account for the majority of MBS issued. In this report, we review the rise of collateralized debt obligations...

Collateralized Debt Obligations (CDO) are structured credit vehicles that redistribute credit risk to meet investor demands for a wide range of rated securities with scheduled interest and principal payments. CDOs are securitized by diversified pools of debt instruments. Recent developments in credit structuring technology include the introduction...

Default correlation is the key point for the pricing of multi-name credit derivatives. In this paper, we apply copulas to characterize the dependence structure of defaults, determine the joint default distribution, and give the price for a specific kind of multi-name credit derivative — collateralized debt obligation (CDO). We also analyze two impo...

This paper contributes to the economics of financial institutions risk management by exploring how loan securitization a.ects their default risk, their systematic risk, and their stock prices. In a typical CDO transaction a bank retains through a first loss piece a very high proportion of the expected default losses, and transfers only the extreme...

The Collateralised Debt Obligation (CDO) is a major asset class in the debt capital markets and a progression in the application of securitisation technology. The first CDOs were developed as repackaging structures for high-yield bonds and convertible bonds, and illiquid instruments such as bank loans. They have developed subsequently into sophisti...

This paper addresses the risk analysis and market valuation of collateralized debt obligations (CDOs). We illustrate the effects of correlation and prioritization for the market valuation, diversity score, and risk of CDOs, in a simple jump-diffusion setting for correlated default intensities.

Nach dreiwöchigen intensiven Verhandlungen verabschiedete der U.S. Kongress am 03.10.2008 das „Troubled Asset Relief Program“ (TARP). Im Rahmen dieser Regierungsinitiative wurden 700 Mrd. US-Dollar für den Ankauf von MBSs (Mortgage-backed Securities/hypothekenbesicherte Wertpapiere), CDOs (Collaterized Debt Obligations/forderungsbesicherte Schuldve...

The Global Financial Crash of 2007/2008 represented a system failure of probably the most highly coupled, least tractable systems ever created—the global financial system. This case study looks at some of the contributing factors and highlights the fact that the global financial system was unable to cope with the extraordinary market conditions tha...

In the last decade, complexity economics has emerged as a powerful approach to the understanding of the most relevant factors influencing economic development. The concept of economic complexity has been applied to the study of different economic issues such as economic growth, technological change and inequality. This work represents a first step...

This chapter details a case study which contemplates the consequences of Goldman Sach's commitment to massive proprietary trading and its belief that it could manage the client conflicts associated with that business model. The study recounts Goldman's evolving thinking on the mortgage market and the need to hedge its own exposure. It also describe...

This chapter presents a case study of ratings integrity vs. revenues at Moody's Investors Services. Moody's Investors Service traced its origins to the founder John Moody, who in 1900 published a manual of statistical information about stocks. Moody's and the other rating agencies bear enormous responsibility for the financial crisis. Students will...

We revisit the theory of financial crises using a predator-prey metaphor, highlighting the relationship between greed, risk aversion and debt accumulation and aggregating concepts from economics, finance and psychology. We argue that regulations that are implemented inefficiently, with weak enforcement or at the wrong time can have deleterious effe...

Credit ratings are fundamental in assessing the credit risk of a security or debtor. The failure of the Collateralized Debt Obligation (CDO) ratings during the financial crisis of 2007-2008 and the massive undervaluation of corporate risk leading up to the crisis resulted in a review of rating approaches. Yet the fundamental metric that guides the...

This chapter begins by discussing Exchange Traded Funds which are marketable securities and presents some examples. Marketable securities are defined as any unrestricted financial instrument that can be bought or sold on a public stock exchange or a public bond exchange. Next the chapter describes the Credit Default Swap (CDS) which is a financial...

Collateralized debt obligations (CDOs) are structured products that are issued by a special purpose vehicle with the objective of improving the issuer’s balance sheet, increasing access to illiquid securities, and/or generating a higher yield than would be offered in a traditional fixed income security. This chapter provides an overview of CDOs inc...

The financial crises that have occurred since 2006 have been associated with a degradation in financial ethics. Since the teaching of derivative pricing is often undertaken in the context of abstract mathematics, the question arises of the role of mathematics in supporting financial ethics. At the heart of the Fundamental Theorem of Asset Pricing,...

Hedging of credit derivatives, especially the Collateralized Debt Obligations (CDOs), is the prerequisite of risk management in financial market. Since both spread risk and default risk exist, the models in existing literature resort to the incomplete-market theory to derive the hedging strategies. From another point of view, the construction of he...

The multifactor version of Copula models is useful in fitting the complex correlation structure among the base portfolio of collateralized debt obligations(CDOs). However, plain Monte Carlo simulation is quite incapable of accurately measuring rare but significant loss events. This paper provides a fast numerical inversion of conditional Laplace tr...

This paper uses a unique data set of more than 1000 synthetic Collateralized Debt Obligations (CDOs) deals to describe typical structures, their pricing and performance with the aim of identifying the factors behind the spectacular collapse of this important segment of structured credit market in late 2008. The data suggests that mark-to-market los...

The reason why derivative markets have grown so stupendously is democracy. By its natural evolution toward a fiat currency, democracy has increased market volatility, forcing individuals and firms to seek protection in a whole new array of derivative instruments. Among those are gold futures, which I put forward here as a measure of the depreciatio...

This chapter describes how typical collateral debt obligations (CDOs) are structured and how they operate. Collateral assets can include RMBS, CMBS, leveraged business loans, trust preferred securities, and other cash-generating debt obligations. CDO securities are issued in tranches, with each tranche assigned a different priority to the payment o...

For the rating process of Collateralized Debt Obligations’, Moody’s suggests the Diversity Score as a measure of diversification in the collateral pool. This measure is used in Moody’s Binomial Expansion Technique to infer the probability of default and thus the expected Loss in the portfolio. In this paper, we examine the appropriateness of this a...

Bruno Latour, according to Andrew Barry, has been ‘extraordinarily influential across the social sciences in Britain’. Latour’s ‘actor-network theory’ has, however, only been influential in literary and cultural studies comparatively recently. This moment has coincided with and been reinforced by the turn to objects, and Latour’s own turn to metaph...

The carry trade, which involves borrowing at one rate and investing at a higher rate is one of the most popular strategies in the hedge fund community. When markets are stable, these trades usually rack up modest, but consistent profits. Unknown to most investors however, is that carry trades often contain a hidden put option sold short. As an exam...

This thesis comprises three essays on the pricing of default risk. It analyzes latest developments in this field empirically and theoretically delivering deeper insights into the questions of how firms default and how default risk is priced in interest rate and equity instruments.

This chapter discusses municipal bonds (munis) collateralized debt obligation (CDO). This chapter also reviews the basics of a traditional CDO structure. A CDO begins with its assets, which for a muni CDO is a pool of municipal bonds. Muni CDOs are likely to focus on issues in three sectors: non-profit corporations, limited recourse housing, and en...

Pricing complex financial derivatives such as collateralized debt obligations (CDO) is considered as the main reason triggering the 2008 financial crisis. The correlation structure related to the credit risks involved in a portfolio for pricing issues have been tried to overcome via a Gaussian copula framework first introduced by David Li (2000). T...

This article investigates how firms in competitive markets use external examples to assess the value of novel practices, focusing on the substantively important case of collateralized debt obligation (CDO) underwriting among US investment and commercial banks, 1996–2007. Diffusion researchers have struggled to adjudicate between competing mechanism...

This paper examines the causal effect of index creation on security prices in related markets. Using a novel identification strategy, I document persistent treatment effects attributable to index inclusion. Variation in the difference between bond and credit default swap (CDS) spreads, known as the basis, is caused by variation in measures of index...

We establish the Default Barrier Intensity (DBI) model, based on the conditional survival probability (also called hazard function barrier), which allows the pricing of credit derivatives with stochastic parameters. Moreover, the DBI is an analytic model which combines the structural and the reduced form approaches. It deals with the impact of the...

Nachdem David X. Li in den Publikationen von Li (1999) und Li (2000) vorgeschlagen hat, die Gauß-Kopula in die Bewertung einer Collateralized Debt Obligation (CDO) einzusetzen, werden die Kopula- basierten Modelle für die Bewertung der CDO bereits weitgehend im Finanzsektor verwendet. In dieser Masterarbeit schlagen wir davor, ein gemischtes Kopula...

Ziel dieses Kapitels ist die Anwendung der in den vorangegangenen Kapiteln hergeleiteten Theorie auf die Bewertung von Kreditderivaten. Die Auswahl der Produkte und deren Bewertungsmethoden orientiert sich dabei an den in der Praxis geläufigsten Produkten. Deswegen beschränken wir uns im Wesentlichen auf Credit Default Swaps (CDS) und die standardi...

The author focuses on a method to price Collateralized Debt Obligations (CDO) tranches. The original method is developed by Castagna, Mercurio and Mosconi in 2012. The Thesis provides an extension of the original work by generalizing the Gaussian dependence in terms of Copula functions. In particular the model is rewritten for the specific case of...

Collateralized Funds of Hedge Fund Obligations (CFOs) are relatively recent structured finance products linked to the performance of underlying funds of hedge funds. The capital structure of a CFO is similar to traditional Collateralized Debt Obligations (CDOs), meaning that investors are offered different rated notes and equity interests. CFOs are...

In a risk-neutral environment, credit spread has been regarded as a function of two variables, i.e., default probability and recovery rate. Once the recovery rate is determined, a spread can be employed to calculate implied default rate of a specific credit name. Most importantly, default correlation is not considered as a factor to determine the c...

This study deals with the dynamic hedging of single-tranche collateralized debt obligations (STCDOs). As a first step, we specify a top-down affine factor model in which a catastrophic risk component is incorporated in order to capture the dynamics of super-senior tranches. Next, we derive the model-based variance-minimizing strategy for the hedgin...

We propose an affine two-factor model for the pricing of single-tranche collateralized debt obligations by following the general top-down framework introduced in Filipovic et al. [2011]. Apart from being analytically tractable, this model has the feature that it incorporates a catastrophic risk component as a tool to capture the dynamics of super-s...

A database driven multi-agent model has been developed with automated access to US bank level FDIC Call Reports that yield data on balance sheet and off balance sheet activity, respectively, in Residential Mortgage Backed Securities (RMBS) and Credit Default Swaps (CDS). The simultaneous accumulation of RMBS assets on US banks’ balance sheets and a...

This research follows Dorn (2010) in assuming that credit index spread resembles a Lévyjump diffusion process, in order to derive the pricing formulae together with the hedging parameters in closed-form for Constant Proportion Collateralized Debt Obligations (CPDOs). By introducing risk measures that are of concerns to credit protection sellers, we...

We investigate a structural model of market and firm-level dynamics in order to jointly price long-dated S&P 500 index options and CDO tranches of corporate debt. We identify market dynamics from index option prices and idiosyncratic dynamics from the term structure of credit spreads. We find that all tranches can be well priced out-of-sample befor...

The downgrading of the tranches of Collateralized Debt Obligation (CDO) products backed by real estate related assets has caused severe disruptions in the housing and financial markets. The rating agencies have been criticized for the opacity in the rating process of the CDO products and also for giving the CDO tranches higher ratings than they des...

CDO Structures Motivation Behind CDO Issuance Analysis and Evaluation Expected Loss CDO Market Overview Since 2005

A database driven multi-agent model has been developed with automated access to US bank level FDIC Call Reports that yield data on balance sheet and off balance sheet activity, respectively, in Residential Mortgage Backed Securities (RMBS) and Credit Default Swaps (CDS). The simultaneous accumulation of RMBS assets on US banks’ balance sheets and a...

During the past decade, a structured financial product called "Collateralized Debt Obligation (CDO)" has been drawing much attention of researchers and practitioners, and is now traded with growing liquidity. However, the approach for CDO pricing has been rather limited in the literature, largely because it is necessary to evaluate the time depende...

Collateralized Debt ObligationsBasket Credit DerivativesCopulas and the Modeling of Default CorrelationSynthetic CDO Tranche Pricing and Loss AnalysisCredit Derivative Indexes

Investors were surprised during the Global Financial Crisis that mortgage securitizations were exposed to larger default rates than corporate bonds given the same credit rating. This paper presents a parsimonious model attributing deviations of default rates from expected default probabilities implied by credit ratings to systematic risk. Condition...

This paper investigates the ABS CDOs (Asset-Backed Security Collateralized Debt Obligations) market between 2005 and 2007 and answers the question of why ABS CDOs exist. The dataset used in this paper contains 516 ABS CDOs, 4,023 CDO tranches, and 79,724 securities used as the collateral of ABS CDOs. Using detailed collateral information on ABS CDO...

What is a CDO? Types of CDOs Growth of the CDO market Balance sheet CDOs Arbitrage CDOs Market value CDOs Ramp up period The CDO manager The CDO investors The CDO trustee Credit-enhancer and swap counterparty Managing the assets of CDOs Asset quality tests Cash flow coverage tests Resecuritization or structured finance CDOs Distressed debt CDOs Hed...