Bridge over ocean
1 January 2001 Financial Analysts Journal Volume 57, Issue 1

Risk and Valuation of Collateralized Debt Obligations

  1. Darrell Duffie
  2. Nicolae Gârleanu

In this discussion of risk analysis and market valuation of collateralized debt obligations, we illustrate the effects of correlation and prioritization on valuation and discuss the “diversity score” (a measure of the risk of the CDO collateral pool that has been used for CDO risk analysis by rating agencies) in a simple jump diffusion setting for correlated default intensities.

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