Pricing Collateralized Debt Obligation with theIntersection of Credit and Market Risks

• Main Authors: Yun-Yi Lin, 林韻怡
• Other Authors: Chou-Wen Wang
• Format: Others
• Language: zh-TW
• Online Access: http://ndltd.ncl.edu.tw/handle/63625487902442635466

碩士 === 國立高雄第一科技大學 === 財務管理所 === 94 === Abstract Extending the model in Jarrow and Turnbull (2000), this is the first paper to derive the closed-form solution of survival probability for each firm with the intersection of market-side risk (spot interest rate and the return of market index) and credit risk. Further, using copula functions, we have numerically analyzed the sensitivity and compute the fair credit spread and expected loss for Collateralized Debt Obligation of varied Tranches with reciprocal effect of the random of default intensity, recovery rate, default correlation among the underlying assets, and the market-side risk, such as spot interest rate and the return of market index. For the numerical outcomes in this research, they can be numerated as: First, when comparing with the amount of credit spread for different types of Tranches, it shows that the spread of Equity Tranche is the highest, Mezzanine Tranche is the next, and the Senior Tranche ranks the lowest. Second, it concludes that both the volatility of market index return and the spontaneous default intensity are positive correlated with credit spread, but the recovery rate is negative correlated. Third, the impact of interest rate volatility on credit spread is deemed to be unimportant. Fourth, with the smaller default correlation among the underlying assets, credit spread of Senior Tranche and Equity Tranche become respectively lower and greater, but such circumstance is reverse when the default correlation among the underlying assets is higher.