Exact Pricing Asymptotics for Investment-Grade Tranches of Synthetic CDO's. Part II: A Large Heterogeneous Pool

2009/03/25 by Richard B. Sowers, Sowers, Richard B.
Economics, Econometrics and Finance · #FOS: Economics and business #Pricing of Securities (q-fin.PR) #q-fin.PR

paper · pdf · doi:10.48550/arxiv.0903.4478

arxiv created 2009/03/25 · arxiv updated 2009/12/01

Abstract

We use the theory of large deviations to study the pricing of investment-grade tranches of synthetic CDO's. In this paper, we consider a heterogeneous pool of names. Our main tool is a large-deviations analysis which allows us to precisely study the behavior of a large amount of idiosyncratic randomness. Our calculations allow a fairly general treatment of correlation.

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