All Your Hedges in One Basket
by Leif Andersen of the Banc of America Securities,
Abstract: New techniques for single-tranche CDO sensitivity and hedge ratio calculations. Using factorisation of the copula correlation matrix, discretisation of the conditional loss distribution followed by a recursion-based probability calculation, and derivation of analytical formulas for deltas, they demonstrate a significant improvement in computational speeds.
Published in: RISK, Vol. 16, No. 11, (November 2003), pp. 67-72.