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Pricing and Hedging of Collateralized Debt Obligations

abstract This research project compares and evaluates factor copula models which are the most popular class of pricing models for Collateralized Debt Obligations. It is based on a new, extensive dataset not studied before. The models' hedge performance is assessed and it turns out to be unsatisfactory in a basic setting. Thus, this model setting is extended and further investigated. Moreover, an investigation of implied model parameters shows that these are not stable, especially during some periods of the considered sample. An empirical investigation is carried out to rationalize their dynamics. Finally, the basic setting is extended by introducing parameter uncertainty and empirically examined. Parameter uncertainty is then linked to the distribution of spreads of credit default swaps in a reference portfolio.
   
keywords Credit Risk, Credit Default Swap, Collateralized Debt Obligation, Derivative Pricing, Hedging
   
partner Francis Longstaff, Unicersity of California, Los Angeles
type dissertation project
status ongoing
start of project 2007
end of project 2008
additional informations
topics Credit Risk, Credit Default Swap, Collateralized Debt Obligation, Derivative Pricing, Hedging
methods
contact Bernd Brommundt