CDO Loss Termucture Expansions in a Fatal-Shock Framework
by Laurent Veilex of Credit-Suisse
Abstract: We present a numerical expansion of the forward loss of CDO tranches in the case of fatal-Shock models (also called Marshall- Olkin). The method is very fast and can be compared with Saddle point and Recursion methods for factor copulas. The benefit of the framework is to allow a term structure of spreads and correlation with a natural understanding of the correlation structure.