Exact Pricing Asymptotics for Investment-Grade Tranches of Synthetic CDO's. Part II: A Large Heterogeneous Pool

Details Exact Pricing Asymptotics for Investment-Grade Tranches of Synthetic CDO's. Part II: A Large Heterogeneous Pool Exact Pricing Asymptotics for Investment-Grade Tranches of Synthetic CDO's. Part II: A Large Heterogeneous Pool

2009-03-25

arxiv.org/abs/0903.4478v1

Economy

Quantitative Finance

Pricing of Securities

Scientific paper

We use the theory of large deviations to study the pricing of
investment-grade tranches of synthetic CDO's. In this paper, we consider a
heterogeneous pool of names. Our main tool is a large-deviations analysis which
allows us to precisely study the behavior of a large amount of idiosyncratic
randomness. Our calculations allow a fairly general treatment of correlation.

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