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CDO model: Large Homogeneous Pool Model, with Gauss-Hermite Integration

by Domenico Picone of Dresdner Kleinwort,
Marco Stoeckle of Dresdner Kleinwort,
Priya Shah of Dresdner Kleinwort, and
Andrea Loddo of Dresdner Kleinwort

September 2008


  • In the first part of our series we release the Large Homogenous Pool Model using the Gauss-Hermite Integration technique.
  • Given the simplified assumptions behind this model, it is not a pricing tool for CDO tranches but instead is the first step to allow the user to appreciate the impact of key parameters such as correlation, recovery and spread on the value of a specific tranche.
  • Additionally, as the pool is considered to have an infinite and identical number of obligors, aspects such as idiosyncratic risk are not specifically treated. We will relax and analyse these points in the upcoming models.

Download spreadsheet : here.

Download manual (700K PDF) 19 pages

Related reading: 1 of 6 CDO model: Large Homogeneous Pool Model
3 of 6 CDO model: Finite Homogeneous Pool Model
4 of 6 A Model for Longevity Swaps: Pricing life expectancy
5 of 6 European RMBS: Cashflow dynamics and key assumptions
6 of 6 Coping with Copulas: Managing tail risk

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