Exact Pricing Asymptotics for Investment-Grade Tranches of Synthetic CDO's - Part ll: A Large Heterogeneous Pool
46 Pages Posted: 24 Apr 2009
Date Written: April 21, 2009
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.
Keywords: large deviations, synthetic CDO's
JEL Classification: C63
Suggested Citation: Suggested Citation