From insurance risk to credit portfolio management: a new approach to pricing CDOs

Andreoli, Alessandro; Ballestra, Luca Vincenzo; Pacelli, Graziella

doi:10.1080/14697688.2015.1136076

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Cdo Primer and Relevant Literature1

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2018

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Cited by 4 publications

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“…Broer () find that disagreement about the default correlations increases the value of structured collateral. Erlenmaier and Gersbach (), Bae, Iscoe, and Kim (), and Andreoli, Ballestra, and Pacelli () also explore appropriate ways of estimating the default correlation and CDO pricing.…”

Section: Cdo Primer and Relevant Literaturementioning

confidence: 99%

Model specification and collateralized debt obligation (mis)pricing

Luo

Tang

Wang

2018

Journal of Futures Markets

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Complex structured products, especially collateralized debt obligations (CDOs), were at the center of the 2008 credit crisis. This paper explores the impact of modeling difficulties on CDO mispricing. Comparing pricing outputs among models with different specifications, we show that the use of a model with advanced default correlation assumptions could have reduced the amount of model‐implied AAA‐rated CDO securities. This pricing difference also has predictive power for the subsequent downgrading of AAA‐rated CDO tranches. However, the model specification is only qualitatively important for CDO mispricing, as it has a modest quantitative effect in explaining the overall pricing errors.

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Section: Cdo Primer and Relevant Literaturementioning

confidence: 99%