All Your Hedges in One Basket

by Leif Andersen of the Banc of America Securities,
Jakob Sidenius of the Banc of America Securities, and
Susanta Basu of the Banc of America Securities

November 2003

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.

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