Title: A Generic One-Factor Lévy Model for Pricing Synthetic CDOs
Authors: Albrecher, Hansjörg
Ladoucette, Sophie
Schoutens, Wim
Issue Date: 2006
Publisher: K.U.Leuven U.C.S. Report
Series Title: vol:2006 issue:02
Abstract: The one-factor Gaussian model is well-known not to fit simultaneously the prices of the different tranches of a collateralized debt obligation (CDO), leading
to the implied correlation smile. Recently, other one-factor models based on different distributions have been proposed. Moosbrucker [12] used a one-factor Variance
Gamma model, Kalemanova et al. [7] and Guégan and Houdain [6] worked with a NIG factor model and Baxter [3] introduced the BVG model. These models bring
more flexibility into the dependence structure and allow tail dependence. We unify these approaches, describe a generic one-factor Levy model and work out the large
homogeneous portfolio (LHP) approximation. Then, we discuss several examples and calibrate a battery of models to market data.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Statistics Section

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