CDO定价经典 AN EMPIRICAL ANALYSIS OF THE PRICING OF COLLATERALIZED DEBT OBLIGATIONS.doc

CDO定价经典-AN EMPIRICAL ANALYSIS OF THE PRICING OF COLLATERALIZED DEBT OBLIGATIONS AN EMPIRICAL ANALYSIS OF THE PRICING OF COLLATERALIZED DEBT OBLIGATIONS Francis A. Longsta???? Arvind Rajan???? Abstract. We study the pricing of collateralized debt obligations (CDOs) using an extensive new data set for the actively-traded CDX credit index and its tranches. We ??nd that a three-factor portfolio credit model allowing for ??rm-speci??c, industry, and economywide default events explains virtually all of the time-series and cross- sectional variation in CDX index tranche prices. These tranches are priced as if losses of 0.4, 6, and 35 percent of the portfolio occur with expected frequencies of 1.2, 41.5, and 763 years, respectively. On average, 65 percent of the CDX spread is due to ??rm-speci??c default risk, 27 percent to clustered industry or sector default risk, and 8 percent to catastrophic or systemic default risk. Recently, however, ??rm-speci??c default risk has begun to play a larger role. Current version: April 2006. ??Allstate Professor of Insurance and Finance, UCLA Anderson School and the NBER. ????Managing Director, Relative Value Trading, Citigroup. We are grate- ful for helpful discussions with Pierre Collin-Dufresne, Keith Crider, Darrell Du??e, Youse?? Elouerkhaoui, Mitch Janowski, L. Sankarasubrahmanian, Alan Sha??ran, David Shelton, Jure Skarabot, Ken Singleton, and Ryoichi Yamabe. We are par- ticularly grateful to Holger Kraft for valuable comments and suggestions. We also thank Guarav Bansal and Yuzhao Zhang for research assistance. All errors are our responsibility. 1. INTRODUCTION In its most basic form, a collateralized debt obligation (CDO) is simply a ??nancial claim to the cash ??ows generated by a portfolio of debt securities or, equivalently, a basket of credit default swaps (CDS contracts). Thus, CDOs can be viewed as the credit-market counterparts to the familiar collateralized mortgage obligations (CMOs) actively traded in secondary mortgage