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  4. Doubly Stochastic CDO Term Structures
 
conference paper

Doubly Stochastic CDO Term Structures

Filipovic, Damir  
•
Overbeck, Ludger
•
Schmidt, Thorsten
2011
Seminar On Stochastic Analysis, Random Fields And Applications Vi
6th Seminar on Stochastic Analysis, Random Fields and Applications

This paper provides a general framework for doubly stochastic term structure models for portfolio of credits, such as collateralized debt obligations (CDOs). We introduce the defaultable (T, x)-bonds, which pay one if the aggregated loss process in the underlying pool of the CDO has not exceeded x at maturity T, and zero else. Necessary and sufficient conditions on the stochastic term structure movements for the absence of arbitrage are given. Moreover, we show that any exogenous specification of the forward rates and spreads volatility curve actually yields a consistent loss process and thus an arbitrage-free family of (T, x)-bond prices. For the sake of analytical and computational efficiency we then develop a tractable class of affine term structure models.

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Type
conference paper
DOI
10.1007/978-3-0348-0021-1_23
Web of Science ID

WOS:000291709800023

Author(s)
Filipovic, Damir  
Overbeck, Ludger
Schmidt, Thorsten
Date Issued

2011

Publisher

Birkhauser Boston, C/O Springer-Verlag, Service Center, 44 Hartz Way, Secaucus, Nj 07096-2491 Usa

Published in
Seminar On Stochastic Analysis, Random Fields And Applications Vi
ISBN of the book

978-3-0348-0020-4

Series title/Series vol.

Progress in Probability; 63

Start page

413

End page

428

Subjects

Affine term structure

•

collateralized debt obligations

•

loss process

•

single tranche CDO

•

term structure of forward spreads

Editorial or Peer reviewed

NON-REVIEWED

Written at

EPFL

EPFL units
CSF  
Event nameEvent placeEvent date
6th Seminar on Stochastic Analysis, Random Fields and Applications

Ascona, SWITZERLAND

May 19-23, 2008

Available on Infoscience
December 16, 2011
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/73966
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