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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Heterogeneous portfolios<br />
Can we find a suitable index portfolio<br />
<br />
Last example worked well since both the bespoke and index portfolios were<br />
fairly similar (both contained investment grade names)<br />
<br />
What about dispersion Suppose bespoke portfolio contains high yield and<br />
investment credits<br />
Map to multiple indices<br />
Find greatest overlap in names across appropriate indices<br />
Extend one-factor Gaussian copula model so that we can map a bespoke portfolio<br />
to multiple index portfolios<br />
32
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