Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...

A credit-linked note (CLN) on a tranche of the CDX index (partially) protects the holder against default losses in that tranche. The holder receives a specified redemption amount at note maturity. The note is priced using market spread quotes for a matching CDS on this tranche

In this paper we present two (semi)-analytic synthetic CDO tranche pricing formulas using a subordinator Levy Marshall-Olkin credit correlation model. These formulas can be easily evaluated in terms of machine computational time, therefore they are particularly suitable for the correlation model...

We devise simulation/regression numerical schemes for pricing the CVA on CDO tranches, where CVA stands for Credit Valuation Adjustment, or price correction accounting for the defaultability of a counterparty in an OTC derivatives transaction. This is done in the setup of a continuous-time...

Several models of how to price synthetic CDOs are presented. The study focuses on comparison of classical Gaussian copula with NIG copula, double t-copula and gaussian stochastic correlation model. Because the the t-copula is technically the most demanding of the presented approaches and usually...

The paper proposes a new methodology for bootstrapping a single-tranche CDO and estimating the term structure of expected loss. If for a CDS swap there is a clear established standard in the face of the ISDA CDS Standard Model that relies on a survival curve based on default intensity, for a CDO...

Modeling the portfolio credit risk is one of the crucial issues of the last years in the financial problems. We propose the valuation model of Collateralized Debt Obligations based on a one- and two-parameter copula and default intensities estimated from market data. The presented method is used...

We propose and test a new algorithm for the numerical integration of the conditional total portfolio loss distribution over the market factor in the one-factor Gaussian copula model. It has higher precision than the popular numerical schemes which use the same or even higher number of sampling...

This paper is intended as a pedagogical note to explain CDO and structured financial credit products modeling and some approaches to their pricing. The authors thank the NYU-Polytechnic Institute for the research support through the department of Finance and Risk Engineering and the Topfer Chair