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

46 Pages Posted: 24 Apr 2009

See all articles by Richard Sowers

Richard Sowers

University of Illinois at Urbana-Champaign - Department of Mathematics

Date Written: April 21, 2009

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.

Keywords: large deviations, synthetic CDO's

JEL Classification: C63

Suggested Citation

Sowers, Richard, Exact Pricing Asymptotics for Investment-Grade Tranches of Synthetic CDO's - Part ll: A Large Heterogeneous Pool (April 21, 2009). Available at SSRN: https://ssrn.com/abstract=1393024 or http://dx.doi.org/10.2139/ssrn.1393024

Richard Sowers (Contact Author)

University of Illinois at Urbana-Champaign - Department of Mathematics ( email )

1409 W. Green St.
Urbana, IL 61801
United States

HOME PAGE: http://www.math.uiuc.edu/~r-sowers/

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