Risk Measurement Of CDO Based On Default Correlation

The central bank, China banking regulatory commission, the ministry of finance jointly issued "About further notice on matters concerning the pilot securitization of credit assets" in May2012, which means credit asset securitization to restart again. Commercial Banks reacted strongly, which have issued13credit asset securitization products (CDO) until March2014.From the perspective of qualitative and quantitative, product structure, trading mechanism and pricing mechanism of the securitization of credit assets are introduced in this article, and the principal of copula tool applying to credit derivatives pricing is also fully described. Based on the characteristics of "thick tail" and "default dependent" in credit risk, the advantages and disadvantages of four kinds of individual credit risk pricing method commonly used by four modern financial institutions are analyzed, from which we conclude that under high intensity of default, the risk is underestimated by BET method, and copula pricing method is necessary.Domestic research for copula method is relatively limited, and most of them just use its conclusion but the core mechanism is omitted. Therefore this article starts from the copula principal, making default intensity, default recovery rate and default correlation its backbone, demonstrating connecting relations between default intensity model and copula function, hoping to provide a reference model for the future development by combing the root principal. Besides, the numerical simulation and graphical display not only covers the outcome analysis of CDO pricing under Gaussian copula and the Student T conditions, also touches sensitivity analysis of default intensity and default asset recovery influenced by credit spreads. In Clayton copula framework the jumping process of single default intensity is simulated, completely presenting credit asset pool "default dependency" simulation environment within the framework of copula model.In this paper, the empirical analysis of2013"gong yuan first phase" CDO product did not stay in the use of copula model and test level, but deep analysis of credit asset pool is given. From the definition of default mechanism, the improvement of right level pricing is conducted, and the method of empirical parameters of the pricing is proposed, too. The borrowers’default correlation is achieved by comparing rank correlation coefficients of industry climate index, and corresponding credit default intensity comes from different Industry statistics of credit market debt information. Finally through sensitivity analysis default loss distribution is studied, and the simulation based on pricing quotation provides certain support for the product market.