Hedging tranches index products: illustration of model dependency

Dominique Guegan () and Julien Houdain
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Dominique Guegan: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Julien Houdain: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper, index tranches'properties and several hedging strategies are discussed. Model risk and correlation risk are analysed through the study of the efficiency of several factor based copula models, like the Gaussian, the double-t and the double NIG using implied correlation and a particular NIG one factor model, using historical data in terms of hedging capabilities.

Keywords: CDO; Factor models; NIG distribution (search for similar items in EconPapers)
Date: 2006
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00179325
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Published in The Icfai Journal of derivatives markets, 2006, 4, pp.39 - 61

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