Quotation Frey, Rüdiger, Backhaus, Jochen. 2010. Dynamic Hedging of Synthetic CDO Tranches with Spread Risk and Default Contagion. Journal of Economic Dynamics and Control 34 710-724.


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Abstract

The paper is concerned with the hedging of credit derivatives, in particular synthetic CDO tranches, in a dynamic portfolio credit risk model with spread risk and default contagion. The model is constructed and studied via Markov-chain techniques. We discuss the immunization of a CDO tranche against spread- and event risk in the Markov-chain model and compare the results with market-standard hedge ratios obtained in a Gauss copula model. In the main part of the paper we derive model-based dynamic hedging strategies and study their properties in numerical experiments.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Economic Dynamics & Control
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, INF-A, STRAT-A, VW-B, WH-A
Language English
Title Dynamic Hedging of Synthetic CDO Tranches with Spread Risk and Default Contagion
Volume 34
Year 2010
Page from 710
Page to 724
URL http://www.math.uni-leipzig.de/~frey/frey-backhaus-hedging-CDOs.pdf

Associations

People
Frey, Rüdiger (Details)
External
Backhaus, Jochen
Organization
Institute for Statistics and Mathematics IN (Details)
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