CDO Evaluation Through Exact Simulation

by Beatrice Acciaio of the University of Perugia & Vienna University of Technology, and
Stefano Herzel of the University of Perugia

August 1, 2007

Abstract: We examine a model, based on affine intensity default processes, to evaluate a cash-flow Collateralized Debt Obligations (CDOs). We show how to efficiently simulate the default times of the obligors underling the collateral securities, and study the problem of evaluating the early redemption option by owners of different tranches.

Keywords: Intensity-Based Approach, Affine Process, Collateralized Debt Obligation.

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