CDO Modeling: Techniques, Examples and Applications

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CDO Modeling: Techniques, Examples and Applications

by Christian Bluhm of HypoVereinsbank

December 10, 2003

Abstract: Collateralized debt obligations (CDOs) constitute an important subclass of asset backed securities. The evaluation of CDOs relies on mathematical modeling and on simulation as well as analytic and semi-analytic approaches, depending on the underlying asset pool and the cash flow structure of the transaction. This paper is an introductory survey on CDO modeling. It starts with a 'mini course' on the use of CDOs as capital market instruments, explains simulation and analytic approaches for evaluating CDOs and considers the notion of PD, EL and LGD of CDO tranches.

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