CDO Pricing Empirical Experience From China’s Primary And Secondary Market

Collateralized Debt Obligations (CDO) is developed rapidly in recent 10 years, and is becoming the most important fixed-income products in the structured finance field. CDO will be packaged as a whole asset pool and pledged assets will be sold to a special purpose vehicle, and then by investment banks the asset pool would be divided into different trenches of securities that issued to investors. After the outbreak of the world’s financial crisis, in which CDO played an important role, the study of COD pricing is very important and urgent. This paper gives several recommendations about CDO pricing, and hope to give some fesible methods for the pricing of China’s CDO product.This paper uses Empirical Study to establish the CDO Pricing in the Chinese Market. Combined with Monte Carlo Simulation method, using Matlab to establish the Pricing Model, this paper finds the sensitivity of the parameters -- recovery rate and asset pool correlation of the Copula Model. This paper also compares Gaussian Copula, t-Copula and Double T-Copula Pricing Models. In the Empirical Study part, this paper uses Copula models to find the price of "ICBC 2013-1" CDO Product, the results and the actual price has a difference less than 0.4%, t-Copula model is a better estimate. For the secondary market, this paper uses the trading strategy from foreign CDO market and based on the domestic market, found that arbitrage opportunities exist in similar maturity AAA CDO products and hope to give some feasible suggestions to the CDO secondary market trading.