Analytical Approximation Method of Collateralized Debt Obligation Pricing in One-Factor Models

摘要

To reduce the complexity of fair spread computation in consideration of random loss given default, an analytical approximation method for collateralized debt obligation (CDO) pricing in one-factor model is proposed by modifying the approximation of portfolio loss distribution of [13]. By comparing the results obtained by the proposed method with the approximation of CDO pricing based on the extended Vasicek model [13] and one of the analytical methods of [7], it is found that the analytical approximation method proposed in this article produces satisfactory results under large number of assets.