A Multi-Portfolio Model for Bespoke CDO Pricing Part I: Methodology
نویسنده
چکیده
Dividing the total portfolio (parent) into non-overlapping sub-portfolios (children), and assuming homogeneity for both the parent and the children, we use a top-down dynamic default intensity model for the parent, and specify the conditional probability of default in the children given imminent default in the parent. We consider two fundamental cases which are building blocks of more complex applications: (a) the parent is an index and the bespoke is a child; and (b) the bespoke is the parent that contains one or more indices as children.
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