Valuation of synthetic CDOs with affine jump-diffusion processes involving Lévy stable distributions

JiangLun Wu; Wei Yang

doi:10.1016/j.mcm.2012.06.038

Valuation of synthetic CDOs with affine jump-diffusion processes involving Lévy stable distributions

JiangLun Wu, Wei Yang

Mathematics And Statistics

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

Abstract

Noticing the heavy tail dependence phenomenon in the Collateralised Debt Obligation (CDO) markets, we utilize affine jump-diffusion processes involving Lévy stable distributions to model the systematic and idiosyncratic risk factors under the setting of intensity-based models. We further derive explicit formulae for the expected loss of CDO tranches under this modelling framework.

Original language	English
Pages (from-to)	570-583
Number of pages	14
Journal	Mathematical and Computer Modelling
Volume	57
Issue number	3-4
DOIs	https://doi.org/10.1016/j.mcm.2012.06.038
Publication status	Published - Feb 2013

Keywords

collateralised debt obligations (CDOs)
intensity based model
affine jump-diffusion processes
heavy tail dependence
Lévy stable distributions

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10.1016/j.mcm.2012.06.038

Cite this

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title = "Valuation of synthetic CDOs with affine jump-diffusion processes involving L{\'e}vy stable distributions",

abstract = "Noticing the heavy tail dependence phenomenon in the Collateralised Debt Obligation (CDO) markets, we utilize affine jump-diffusion processes involving L{\'e}vy stable distributions to model the systematic and idiosyncratic risk factors under the setting of intensity-based models. We further derive explicit formulae for the expected loss of CDO tranches under this modelling framework.",

keywords = "collateralised debt obligations (CDOs), intensity based model, affine jump-diffusion processes, heavy tail dependence, L{\'e}vy stable distributions",

author = "JiangLun Wu and Wei Yang",

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language = "English",

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journal = "Mathematical and Computer Modelling",

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T1 - Valuation of synthetic CDOs with affine jump-diffusion processes involving Lévy stable distributions

AU - Wu, JiangLun

AU - Yang, Wei

N1 - updated entry

PY - 2013/2

Y1 - 2013/2

N2 - Noticing the heavy tail dependence phenomenon in the Collateralised Debt Obligation (CDO) markets, we utilize affine jump-diffusion processes involving Lévy stable distributions to model the systematic and idiosyncratic risk factors under the setting of intensity-based models. We further derive explicit formulae for the expected loss of CDO tranches under this modelling framework.

AB - Noticing the heavy tail dependence phenomenon in the Collateralised Debt Obligation (CDO) markets, we utilize affine jump-diffusion processes involving Lévy stable distributions to model the systematic and idiosyncratic risk factors under the setting of intensity-based models. We further derive explicit formulae for the expected loss of CDO tranches under this modelling framework.

KW - collateralised debt obligations (CDOs)

KW - intensity based model

KW - affine jump-diffusion processes

KW - heavy tail dependence

KW - Lévy stable distributions

U2 - 10.1016/j.mcm.2012.06.038

DO - 10.1016/j.mcm.2012.06.038

M3 - Article

VL - 57

SP - 570

EP - 583

JO - Mathematical and Computer Modelling

JF - Mathematical and Computer Modelling

SN - 0895-7177

IS - 3-4

ER -

Valuation of synthetic CDOs with affine jump-diffusion processes involving Lévy stable distributions

Abstract

Keywords

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