CDO Squared: A Closer Look at Correlation

by Matthias Neugebauer of Fitch Ratings,
Richard Gambel of Fitch Ratings,
Jill Zelter of Fitch Ratings,
Richard Hrvatin of Fitch Ratings, and
Mike Gerity of Fitch Ratings

February 2, 2004

Introduction: Over the past year the market has seen significant growth in the issuance of synthetic collateralised debt obligations ("CDOs"), which reference portfolios of underlying single-tranche CDOs of investment-grade corporates ("underlying CDOs"). These transactions, effectively CDOs of CDOs, are also known as "CDO squared" products.

Although CDOs of CDOs may appear to provide additional diversification, the limited universe of liquid corporate single name credit default swaps ("CDS") has resulted in substantial overlap among the reference portfolios in the underlying CDOs.

Keywords: Bespoke CDOs, equity derivatives, correlation modeling, vega convexity, dynamic conditioning, abelian path dependencies.

Download paper (287K PDF) 11 pages

[Home] [CDO Papers]

[ Home ] [ Up ]

Please contact me with problems or suggestions.
Copyright © 2000-2008 DefaultRisk.com
Last modified: July 02, 2008