The Pricing of Collateralized Debt Obligation under Incomplete Information

• Main Authors: Tzu-Chien Ying, 應子健
• Other Authors: Keh-Luh Wang
• Format: Others
• Language: en_US
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/88041772650906887124

碩士 === 國立交通大學 === 財務金融研究所 === 94 === The purpose of this study is to employ publicly available data to estimate the default probability and build credit spreads for various tranches of CDO considering default correlation. Because of limited data for credit ranking, small secondary market for bond transaction and insufficient accounting information, we use incomplete information default model to estimate default probability and use dynamic copula functions to construct default correlation. Under the risk neutral measure, we can obtain the fair premium for different tranches of collateralized debt obligations. The empirical results show that the spread of each tranche under incomplete information default model is larger than that under Merton’s default model. Moreover, dynamic copula functions can describe loss structure in more details and affect the spread for each tranche. We think this article can provide a more precise and workable CDO pricing process for an emerging market like in Taiwan.