Dissertation > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods

The Research on the Pricing Models and Simulation of the Collateralized Debt Obligation

Author WuHua
Tutor DengChao
School Central South University
Course Management Science and Engineering
Keywords Collateralized debt obligations(CDO) Instrument of financialderivatives Financial assets pricing Monte Carlo simulation Analogsimulation
CLC F224
Type PhD thesis
Year 2012
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CDO,as a credit derivative,is the most important innovation technology in the asset securitization field recently,which is paid much attention by market. The basic idea of CDO is that through asset securitization technology, bonds, loans and other financial assets to set up the pool of assets on the basis of mortgage debt credit, re-partition the return on investment and risk, and thus designed to meet the needs of different investors but also to improve the innovation of the risk of bank assets, earnings the nature of derivative securities finished.It is perfectly combined the quality of asset securitization and credit derivatives,whose underlying asset is not only to bank loans, bonds, and to ABS, MBS.With the development of credit derivative products, the new credit derivatives of CDO are appeared.The U.S. subprime mortgage crisis erupted in2008, maked the effect of the risk of collateralized debt obligations were enlarged,and the financial risks of collateralized debt obligations to avoid recurrence of tight bell sounded. China’s collateralized debt obligations and practices are still in the preliminary trial basis with the exploratory stage. So the classification mechanism and changing the type of collateralized debt obligations has very broad application prospects in China’s financial reform process. At present, China’s major commercial banks were actively designing collateralised financial products, in order to effectively deal with a large number of bad loans.This paper will be based on the financial characteristics of collateralized debt obligations, systematic detection of financial pricing models, build and simulate their credit risk identification, pricing and Prevention. In the research process, we will make use of collateralized debt obligations on financial derivatives and hedging the underlying asset prices, risk characteristics, as well as between the volatility of the match simulation analysis in order to seek appropriate derivatives hedging rate and its associated hedging the underlying asset; in addition, the reference to the existing historical data and price behavior,collateralized debt obligations pricing simulation,empirical investigation of collateralized debt obligations of historical and empirical data to measure the pricing model of collateralized debt obligations feasibility and reliability. Specific studies are as follows:First,through the discusses of collateralized debt market development, market structure, market efficiency, this article can grasp the characteristics and development trend of the market of collateralized debt obligations for the pricing of CDO products lay the foundation of theory and practice. Second, this paper is based on credit derivatives pricing model and pricing mechanism to axplore some points. From the assumptions of the model, the simulation techniques boundary conditions and the initial state to determine the value,we will introduce GARCH effect to construct the pricing model. Steps as follows:(1) estimate asymmetric effect parameters of our country interest rate level;(2) use DTSM model to produce simulation data sequence and got the simulation rates to calculate the range of actual assets-interest rates fluctuation;(3) through the initial condition value and data generation algorithm, simulation of the upper limit of the interest rates cross time combination, and get the CDO based assets-interest rates fluctuate;(4) Shibor price series products of the statistical features of especially wave characteristics and maturity structure is analyzed, and the analysis of the model with the QTMS of China’s collateralised debt obligations product market pricing boundary conditions and initial conditions for a statistical description;(5) use multiple GARCH prediction technology in Eviews for Shibor’s future price behavior prediction, so as to ensure that our country credit derivatives market simulation initial input value validity;(6) use our country interest rate market data to analyse the CDO data in our country market. Based on the analysis of underlying asset price behavior,the paper was used DTSM model to obtain the boundary conditions and initial state input value of our credit derivatives market, then it was used the pricing kernel model and Monte Carlo simulation technology on China CDO product price process simulation to measure the applicability and feasibility of simulation method.Through the analysis of foundation assets (shibor) price behavior, this paper uses Gauss-Coupla model for our country collateralised debt obligations product market pricing boundary conditions and the initial state input value, then uses positive asymmetric effects pricing model and monte carlo simulation technology to our country CDO the price of the product process simulation, measure simulation method the applicability and feasibility. Finally, synthetic CDO in paper to real estate mortgage financial products, for example, analysis of the debt risk characteristics of mortgage products, and on this basis, using forward pricing of asymmetric effects of kernels for simulation and Monte Carlo models on the price of financial products. Research results indicates that:debt mortgage bond equity and sandwich part is lever role of underlying, a sandwich part of risk and lever role depends on its credit of strengthening degree, and equity part of risk transfer is limited of; mortgage bond and other innovation credit products is CDO of associated trading; investors if can correctly using default correlation, on can created trade opportunities, for related of risk management, and accordingly implementation commercial cycle of measure.This article mainly took the methods of comparative research, interpretation of modeling, simulation and empirical statistical inference. Morever, simulation technology was used to creat pricing theory by creatly using Monte Carlo simulation method.At the same time,this paper was combined with historical tradition of the credit derivatives market in China,considering differences between Chinese and western cultural background. In addition it was first time introduced stochastic discount factor behavior to simulate pricing kernel function simulation effect evaluation.

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