Modified Pricing Model for Synthetic Collateralized Debt Obligation (SCDO)

Author

Ye, Zhongxing ; Sun, Lizhen

Author_Institution

Dept. of Math., Jiao Tong Univ., Shanghai, China

fYear

2010

fDate

13-15 Aug. 2010

Firstpage

152

Lastpage

155

Abstract

The original one factor Gaussian Copula model for pricing SCDO has some demerits, such as the correlation coefficient calculated under this model may be larger than 1. To make the model parameters more reasonable and capture the real world characteristics, a modified model is introduced by adding lag factors which affect the collateral quality in the asset pool. This new model has two big advantages: (1) It Guarantees the correlation coefficients stay between 0 and 1 in all kinds of market conditions. (2) It can help the investors find arbitrage opportunities.

Keywords

Gaussian processes; pricing; Gaussian Copula model; SCDO pricing; asset pool; collateral quality; correlation coefficient; market condition; model parameter; modified pricing model; synthetic collateralized debt obligation; Biological system modeling; Computational modeling; Correlation; Economic indicators; Mathematical model; Portfolios; Pricing; financial crsis; one factor Gaussian Copula; reuced-form model; synthetic collateralized debt obiligation (SCDO);

fLanguage

English

Publisher

ieee

Conference_Titel

Business Intelligence and Financial Engineering (BIFE), 2010 Third International Conference on

Conference_Location

Hong Kong

Print_ISBN

978-1-4244-7575-9

Type

conf

DOI

10.1109/BIFE.2010.44

Filename

5621749