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- Title
RELATING TOP-DOWN WITH BOTTOM-UP APPROACHES IN THE EVALUATION OF ABS WITH LARGE COLLATERAL POOLS.
- Authors
DIENER, NICOLAS; JARROW, ROBERT; PROTTER, PHILIP
- Abstract
This paper uses a conditional law of large numbers and a conditional central limit theorem to provide simplified asymptotic valuation formulas for credit derivatives on baskets, including synthetic and cash-flow CDOs. In particular, approximate pricing procedures are provided for synthetic and cash-flow CDOs. In the process, this paper also clarifies the relation between the "top-down" and "bottom-up" approaches for pricing credit derivatives.
- Subjects
COLLATERAL security; LAW of large numbers; VALUATION; CREDIT derivatives; CASH flow; PRICING; COLLATERALIZED debt obligations
- Publication
International Journal of Theoretical & Applied Finance, 2012, Vol 15, Issue 2, p1250011-1
- ISSN
0219-0249
- Publication type
Article
- DOI
10.1142/S0219024912500112