Managing Synthetic CDO Tranches using Base Correlations
Managing Synthetic CDO Tranches using Base Correlations
Managing Synthetic CDO Tranches using Base Correlations
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Pricing bespoke tranches under the base correlation<br />
framework<br />
<br />
What’s a bespoke tranche<br />
Non-standard custom <strong>CDO</strong> tranche<br />
The investor chooses:<br />
Reference portfolio<br />
Attachment/detachment points<br />
Maturity<br />
Other details<br />
Term used to distinguish S<strong>CDO</strong> tranches from (liquid) index tranches<br />
Typically, refers to a different reference portfolio<br />
<br />
It’s illiquid<br />
Can we use standard tranche indices to price and capture risk for bespokes<br />
Standard index tranches:<br />
CDX 0-3%, 3-7%, 7-10%, 10-15%, 15-30%<br />
iTraxx 0-3%, 3-6%, 6-9%, 9-12%, 12-22%<br />
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