Saddlepoint Approximation for Pricing and Hedging Synthetic CDO
碩士 === 國立中央大學 === 財務金融研究所 === 96 === This paper utilizes the saddlepoint approximation method to calculate loss distribution in the one factor Gaussian copula model, and evaluates the fair spread and mark-to-market of CDO tranches. Moreover, we analyze the sensitivity of the fair tranche spread to t...
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| Format: | Others |
| Language: | en_US |
| Published: |
2008
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| Online Access: | http://ndltd.ncl.edu.tw/handle/28134961127485742006 |
| Summary: | 碩士 === 國立中央大學 === 財務金融研究所 === 96 === This paper utilizes the saddlepoint approximation method to calculate loss distribution in the one factor Gaussian copula model, and evaluates the fair spread and mark-to-market of CDO tranches. Moreover, we analyze the sensitivity of the fair tranche spread to the changes of underlying portfolio spreads and work out the mark-to-market and hedge ratios for the tranches. Traditionally, using recursive method to calculate the sensitivity of mark-to-market has assumed a parallel shift of 1 basis point in the spread of the single name CDS or the underlying portfolio spreads. The recursive approach makes computation of mark-to-market and hedge ratios less efficient due to computing burden. Hence, the main contribution of this paper is to use saddlepoint approximation method to get semi-analytic formula for the sensitivity of fair spread and mark-to-market.
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