EconPapers    
Economics at your fingertips  
 

Pricing tranched credit products with generalized multifactor models

Juan Ignacio Peña Sánchez de Rivera, Manuel Moreno () and P. Serrano

DEE - Working Papers. Business Economics. WB from Universidad Carlos III de Madrid. Departamento de Economía de la Empresa

Abstract: The market for tranched credit products (CDOs, Itraxx tranches) is one of the fastest growing segments in the credit derivatives industry. However, some assumptions underlying the standard Gaussian onefactor pricing model (homogeneity, single factor, Normality), which is the pricing standard widely used in the industry, are probably too restrictive. In this paper we generalize the standard model by means of a two by two model (two factors and two asset classes). We assume two driving factors (business cycle and industry) with independent tStudent distributions, respectively, and we allow the model to distinguish among portfolio assets classes. In order to illustrate the estimation of the parameters of the model, an empirical application with Moody's data is also included.

Keywords: Collateral; debt; obligations; Factor; models; Probit-Logit; models (search for similar items in EconPapers)
Date: 2007-05
References: View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
https://e-archivo.uc3m.es/bitstream/handle/10016/720/wb0739091.pdf?sequence=1 (application/pdf)

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:cte:wbrepe:wb073909

Access Statistics for this paper

More papers in DEE - Working Papers. Business Economics. WB from Universidad Carlos III de Madrid. Departamento de Economía de la Empresa
Series data maintained by Ana Poveda ().

 
Page updated 2018-01-13
Handle: RePEc:cte:wbrepe:wb073909