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1635. Pricing synthetic CDOs under infectious defaults with immunization
Invited abstract in session MC-51: Quantitative methods for systemic and climate risk, stream Risk management in finance.
Monday, 12:30-14:00Room: M5 (building: 101)
Authors (first author is the speaker)
| 1. | Gabriele Torri
|
| Management, Economics and Quantitative Methods, University of Bergamo | |
| 2. | Gianluca Farina
|
| University of Bergamo | |
| 3. | Rosella Giacometti
|
| Management, Economics and Quantitative Methods, University of Bergamo |
Abstract
This work introduces a recursive algorithm for the portfolio loss distribution similar, in spirit, to the one commonly used for CID (conditionally independent) models. We model default events under a contagion mechanism which is the result of two independent components: an infection attempt generated by defaulting entities and a failed defence from healthy ones. A recursive algorithm for the calculation of the portfolio loss distribution is presented that shows a good level of computational tractability even when an heterogeneous set of names is considered. We apply it to the pricing and hedging of CDO instruments and compare its performance to the standard one factor Gaussian model.
Keywords
- Algorithms
- Financial Modelling
- Risk Analysis and Management
Status: accepted
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