Pricing and Hedging of CDOs: A Top Down Approach
نویسندگان
چکیده
This paper considers the pricing and hedging of collateralized debt obligations (CDOs). CDOs are complex derivatives on a pool of credits which we choose to analyse in the top down model proposed in Filipović et al. [4]. We reflect on the implied forward rates and bring them in connection with the top-down framework in Lipton and Shelton [8] and Schönbucher [11]. Moreover, we derive variance-minimizing hedging strategies for hedgeing single tranches with the full index. The hedging strategies are given for the general case. We compute them also explicitly for a parsimonious one-factor affine model.
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