The Discrete Gamma Pool Model
by Peter Jäckel of OTC Analytics
November 16, 2008
Abstract: We propose a model for the dynamics of losses and spreads on portfolios for the purpose of pricing exotic variations of synthetic collateralised tranche obligations such as Loss Triggered Leveraged Super-Senior notes, multi-callable CDOs, and, by implication of the latter, options on forward starting CDOs. Also, we discuss how features such as the counterparty's right to deleverage upon a loss trigger event in a leveraged super senior can be understood as an embedded Bermudan swaption, and how this can be catered for in a numerical implementation.
Published in: Wilmott Journal, Vol. 1, No. 1, (February 2009), pp. 23-40.