Saddlepoint approximation method for pricing CDOs

Jingping Yang, T. R. Hurd and Xuping Zhang

Journal of Computational Finance

Abstract: ABSTRACT A critical issue in the credit risk industry is the accurate, efficient and robust pricing of collateralized debt obligations (CDOs) in a variety of mathematical models. These and many similar basket default products are very complex, due to the characteristics of the large number of individual firms upon which they depend. Despite this complexity and because of their versatility, such products have become popular in the market. A central difficulty which arises in most models of CDOs is the efficient computation of conditional default loss distributions. Since exact computation is feasible only in highly symmetric situations, it is necessary to have a variety of acceptable approximation schemes. The present paper explores one general method, the saddlepoint approximation, and shows that it offers an improvement when compared with simpler methods.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-computational-fina ... hod-for-pricing-cdos (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ0:2160425

Access Statistics for this article

More articles in Journal of Computational Finance from Journal of Computational Finance
Bibliographic data for series maintained by Thomas Paine ().