Publication

Pricing and Hedging of CDOs: A Top Down Approach

2010
Conference Papers

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. (Math. Finance, forthcoming, 2009). We reflect on the implied forward rates and bring them in connection with the top-down framework in Lipton and Shelton (Working paper, 2009) and Schonbucher (Working paper, ETH Zurich, 2005). Moreover, we derive variance-minimizing hedging strategies for hedging 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.

Official source

https://infoscience.epfl.ch/entities/publication/9b40c2ae-1cb1-4967-b8ed-192ac7c964b5

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2010
Conference Papers

Abstract

Official source

https://infoscience.epfl.ch/entities/publication/9b40c2ae-1cb1-4967-b8ed-192ac7c964b5

About this result

Related concepts (30)

Hedge (finance)

A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, many types of over-the-counter and derivative products, and futures contracts.

Hedge fund

A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as short selling, leverage, and derivatives. Financial regulators generally restrict hedge fund marketing to institutional investors, high net worth individuals, and accredited investors. Hedge funds are considered alternative investments.

Derivative (finance)

In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the underlying. Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets.

Related publications (1)

Pricing and Hedging of CDOs: A Top Down Approach

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