| Summary: | 碩士 === 國立政治大學 === 金融研究所 === 103 === This paper presents the Large Homogeneous Portfolio (LHP) approach to the pricing of CDOs and we derive the one-factor copula model. It is popular that the one-factor copula models are very useful for risk management and measurement applications involving the generation of scenarios for the complete universe of risk factors. However, since the financial crisis in 2008 induces some errors in the valuation by Gaussian copula model, which is originally adopted by credit rating firms, it is necessary to have a simple and fast model that can capture the market unstableness. In this paper we apply two extensions of the NIG copula model, which are first present by Anna Schloesser (2009), since they make the model well defined and powerful for scenario simulation. The NIG Regime-Switch copula model allows for two important features: (i) tranches with different maturities modeled in a consistent way, and (ii) different correlation regimes. The regime-switching component of the NIG copula model is especially important in view of the financial crisis. This paper also targets on different models to conduct risk analysis and hedging strategy. The expected loss of tranches is widely used by credit rating organizations as one of the important indicators for risk measurement. However, it can’t reflect the relative risk level between CDO’s tranches. Therefore, our research adopts the concept of expected loss rate, which use the proportion of expected loss to total principal amount to compare the relative risk of each tranche. Moreover, when we want to hedge the spread risk of synthetic CDO tranches, the holders of tranches can choose the existing CDS index or the single-name CDS based on different risks types to hedge. The employment of the NIG Regime-Switch copula model not only has more precise estimation for the spread of tranches but also possess more stable hedge ratio to hedge.
|
|---|
