Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5090920 | Journal of Banking & Finance | 2007 | 20 Pages |
Abstract
In this paper, we consider the valuation of a synthetic collateralized debt obligation (CDO), a pool of underlying credit risky securities, “partitioned” into several tranches, each of which absorbs losses in accordance with its size and seniority. We derive a closed-form solution for credit spreads of the tranches of homogeneous pools and find an approximation for the credit spreads of inhomogeneous pools. The method leads to an accurate estimation of the credit spreads of synthetic CDOs and can be used in risk management applications.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Ian Iscoe, Alexander Kreinin,