Analysis of CDO tranche valuation and the 2008 credit crisis

The causes of the 2008 financial crisis were wide ranging. Some financial commentators have suggested there were significant inadequacies in the models used to price complex derivatives such as synthetic Collaterilised Debt Obligations (CDOs). We discuss the technical properties of CDOs and the modeling approaches used by CDO traders and the watchdog credit rating agencies. We look at how the pricing models fared before and during the financial crisis. Comparing our model prices to market synthetic CDO prices, we investigate how well these pricing models captured the underlying financial risks of trading in CDOs.

Grantor dc:publisher.institution

Division of Actuarial Science

Year dc:date.issued

2013

Author dc:creator

• Muzenda, Nevison

Advisor dc:contributor.advisor

• Becker, Ronald

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/11093

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/11093