Re: Questions Re The CDO Class

Posted by Alex Zhang-9 on
URL: http://quantlib.414.s1.nabble.com/Questions-Re-The-CDO-Class-tp840p844.html

Salut, Pepe!

Thank you very much for your reply.

I spent a bit more time on it in the last 2 days. I am getting pretty close to Bloomberg pricing tranches like 0-15%, 3% -7% etc. I was aware that BBG uses base correlation. But I just made the attachment and detachment correlations the same. Guess that would be pretty much the same with compound correlation.

I was not using 0 RR. But IMHO, 0-100% spread should be the same with index spread. Could you please say more about LHP and why there could be difference between 0-100% spread and index spread?

One reason for my results to be different with BBG is the discount curve. I am using some dummy flat curve set at 5 YR USD Swap. But I don't know if that's enough to justify the difference. Let me double check my codes again and put my results here.

I will post more re my investigation if I find anything. Meanwhile, I need you and other people's direction desperately. Thanks!

- Alex

---

From: "[hidden email]" <[hidden email]>
To: Alex Zhang <[hidden email]>
Cc: [hidden email]
Sent: Wed, January 12, 2011 5:14:49 AM
Subject: Re: [Quantlib-users] Questions Re The CDO Class

Hi Alex,
----- "Alex Zhang" <[hidden email]> a écrit :

> Hey Everybody,
>
>
> I just started using Quantlib to build a CDO model asap. Since the CDO
> class is listed as experimental, I wonder if anyone can kindly share
> any experience using it and how close it can get to the Bloomberg's 1
> factor CDO model (standard Gaussian).

Theres no Base Correlation pricing engine yet and you are bound to get differences
since thats what Bloomberg will be doing. I started coding this but havent found the
time to finish it yet.

I wrote a little program to feed
> the CDO class with 100 identical DefaultProbabilityTermStructures.
> Then I priced CDO for 0%-100%, the fairPremium I got is close but
> different from the CDS premium that I was expecting.
>
The LHP should do the trick. Are you using zero RR on the CDS?, I mean a tranche like
that doesnt knock out like a CDS so they are not the same contract unless you twist
it a bit.

> The reference (
> http://quantlib.org/reference/class_quant_lib_1_1_c_d_o.html ) says it
> is designed to price mezzanine. I wonder if that matters.
>
I believe it means mezzanine as in 'any generic tranche'
Please post how it goes, I get the impression this hasnt been much tested.

Best
Pepe

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