An Empirical Analysis of the Pricing of Collateralized Debt Obligations
Francis Longstaff and
Journal of Finance, 2008, vol. 63, issue 2, 529-563
We use the information in collateralized debt obligations (CDO) prices to study market expectations about how corporate defaults cluster. A three-factor portfolio credit model explains virtually all of the time-series and cross-sectional variation in an extensive data set of CDX index tranche prices. Tranches are priced as if losses of 0.4%, 6%, and 35% of the portfolio occur with expected frequencies of 1.2, 41.5, and 763 years, respectively. On average, 65% of the CDX spread is due to firm-specific default risk, 27% to clustered industry or sector default risk, and 8% to catastrophic or systemic default risk. Copyright 2008 by The American Finance Association.
References: Add references at CitEc
Citations View citations in EconPapers (60) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2008.01330.x link to full text (text/html)
Access to full text is restricted to subscribers.
Working Paper: An Empirical Analysis of the Pricing of Collateralized Debt Obligations (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:63:y:2008:i:2:p:529-563
Ordering information: This journal article can be ordered from
Access Statistics for this article
More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Series data maintained by Wiley-Blackwell Digital Licensing ().