On Pricing Risky Loans and Collateralized Fund Obligations

On Pricing Risky Loans and Collateralized Fund Obligations

Loan spreads are analysed for two types of loans. The …rst takes losses at maturity only; the second one follows the formulation of CFOs (Collateralized Fund Obligations), with losses registered over the lifetime of the contract. In both cases, the implementation requires the choice of a process for the underlying asset value and the identi…cation of the parameters. The parameters of the proces...

Securitization & Hedge Funds: Collateralized Fund Obligations

Risk Analysis of Collateralized Debt Obligations

Collateralized debt obligations, which are are securities with payoffs that are tied to the cash flows in a portfolio of defaultable assets such as corporate bonds, play a significant role in the financial crisis that has spread throughout the world. Insufficient capital provisioning due to flawed and overly optimistic risk assessments is at the center of the problem. This paper develops stocha...

Change Analysis of Default Correlation and Dynamic Pricing of Collateralized Debt Obligations∗

In this paper we use dynamic copulas method to price a CDO. We apply GOF test and binary segmentation procedure to detect the change of copula function. According to the result of the change point, we divide the time series into nine stages. In each stage, we use the best copula function to describe the default correlation. Our empirical results show that in different time period, the best copu...

Bank Collateralized Loan Obligations: An Overview

Collateralized loan obligation (CLO) volume has increased significantly over the past two years (see chart, page 2). Third-quarter 1997 issuance hit a record-breaking $25.5 billion, more than doubling the 1996 volume of $11.5 billion. Furthermore, by year end, it is estimated that the total volume for collateralized bond obligations (CBOs) and CLOs will reach $35 billion– $40 billion. With larg...