CDOs in Chains: Wilmott Magazine Article – Johan de Kock, Holger Kraft & Mogens Steffensen

This paper discusses the pricing of CDOs in a Markov chain framework. We show that in general the values of the legs satisfy systems of partial differential equations. In the special case of constant default intensities, one only needs to solve a system of ordinary differential equations, the so-called Kolmogorov differential equations.

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