• Calculating Risk Sensitivities for Monte Carlo Approach

    Author(s):
    David Lee (see profile)
    Date:
    2023
    Group(s):
    Business Management
    Subject(s):
    Credit derivatives, Derivative securities--Valuation, Risk management, Capital assets pricing model
    Item Type:
    Article
    Tag(s):
    securitization, Monte Carlo simulation, Risk Sensitivities, CDO
    Permanent URL:
    https://doi.org/10.17613/vrzw-a759
    Abstract:
    This article presents a model for pricing complex CDO structures and compute the sensitivities of the risk factors. The complex CDO structures need to be priced using the market information on tranche losses at multiple points of time. Currently, the model is being used for the valuation of forward starting CDO trades (FSCDO) and loss-trigger leverage super senior tranches (LT-LSS). In the model, a more robust and efficient method is employed to compute the sensitivities of the risk factors that can be replicated by calibrating instruments. The model is also improved to handle bucketed credit spread sensitivities and bucketed default sensitivities. The credit spread sensitivity, default sensitivity, correlation sensitivity, and interest rate sensitivity for FSCDO trades have been implemented in the model.
    Notes:
    https://www.mysciencework.com/publication/download/new-model-pricing-collateralized-financial-derivatives-da938750/8483de8f779fee2b4dadf7eb9f89c55d
    Metadata:
    Status:
    Published
    Last Updated:
    3 months ago
    License:
    Attribution

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