Research On The Pricing Method Of Mortgage Debt Securities (CDO) And Its Application

Collateralized debt obligations issued since 1987 in the international market is expanding. With the support of regulators, non-performing asset securitization, CDO expanding the size of our country, and therefore the study of CDO pricing model is imminent.Based on previous research, this paper proposes a new method CDO Pricing-Based on Copula and Markov Chain Monte Carlo Method. This paper is divided into eight chapters.The first chapter describes the research background of CDO pricing and the value of this paper. In the second chapter, the semi analytic pricing formula of CDO is introduced, and the key problem of pricing is to determine the time distribution of the default.The third chapter and the fourth chapter introduce the existing Copula function and the simulation steps of these Copula functions in CDO pricing. The use of a simple copula function pricing can get continuous default time, but it is difficult to describe the correlations over time or changes in the market environment, and will ignore companies default intensity changes with time or market environment.The fifth chapter is proposed based on Markov Chain Monte Carlo Method CDO pricing. When a company defaults, the other companies will default probability corresponding to the correlation, while addressing the relevance of this characterization and the problems of its change over time, but this change is not continuous.The sixth chapter innovativly combine with Copula function and Markov chain stochastic simulation method CDO pricing. The method can simultaneously play the advantages of the two models, which can not only take into account the variation of the intensity of the breach, but also can get the continuity of the default time. This is an innovative point of this paper. In the seventh chapter, a case study of Copula and Markoff chain based stochastic simulation is carried out, in which the numerical simulation using R language. The results show that based on the Copula and Markoff chain stochastic simulation method, the bottom pricing model can reflect the real market data. The eighth chapter summarizes the research work in this paper.