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arXiv · 1007.1706

CDO term structure modelling with Levy processes and the relation to market models

Thorsten Schmidt·Jerzy Zabczyk
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Abstract

This paper considers the modelling of collateralized debt obligations (CDOs). We propose a top-down model via forward rates generalizing Filipović, Overbeck and Schmidt (2009) to the case where the forward rates are driven by a finite dimensional Lévy process. The contribution of this work is twofold: we provide conditions for absence of arbitrage in this generalized framework. Furthermore, we study the relation to market models by embedding them in the forward rate framework in spirit of Brace, Gatarek and Musiela (1997).

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Thorsten Schmidt, Jerzy Zabczyk. 2010-12-20. CDO term structure modelling with Levy processes and the relation to market models. https://doi.org/10.1142/s0219024911006462

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