An Empirical Study Of The Pricing Of Collateralized Debt Obligations For Chinese Bond Market

Collateralized debt obligations (CDO) is based on cash flow from the asset poolof credit, to be issued tranches of structured financial derivative s. Because of itscomplex internal structure and transaction process, making it particularly difficult toprice at home and abroad.Based on the domestic market, the lack of credit default characteristics of the data,as well as CDO·s assets pool has higher rating and concentration and so on. UsingKMV model, estimated the probability of default data of each asset in the pool market.Asset value for the occurrence of an event of default leading case of jumping in themodel introduced "jump" to describe the process. Then, the "fat tail" feature of returnsequence of the credit assets, reduced the correlation structure is dynamic, non-linearrelated. This paper introduces the Gaussian Copula and Student-t Copula function toestimate the reciprocal of each debtor default correlation structure. Finally, the use ofarbitrage-free pricing theory solved the sub-surface and the loss of ticket revenue side,then using the Monte Carlo simulation to estimate the various tranches of reasonablecredit spreads.The empirical results show that using the KMV model estimates "debtor"probability of default is valid, for the mutation process in the model through theintroduction of the "jump process" to describe. And, the pricing accuracy of theadvanced tranches is better than Subordinated tranche. Secondly, the introduction ofCopula function can be a good fit nonlinear tail credit risk characteristics of assets,and the Student-t Copula function with respect to the Gaussian Copula function bettersimulation results, the average can narrow3-5bps. Finally, we find that the KMVmodel, the use of virtual "debtor" to classification, will increase the asset’s creditlevel, thus making the Subordinated tranche pricing error level increase.