Analysis of CDO tranche valuation and the 2008 credit crisis
Master Thesis
2013
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University of Cape Town
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Abstract
The causes of the 2008 financial crisis were wide ranging. Some financial commentators have suggested there were significant inadequacies in the models used to price complex derivatives such as synthetic Collaterilised Debt Obligations (CDOs). We discuss the technical properties of CDOs and the modeling approaches used by CDO traders and the watchdog credit rating agencies. We look at how the pricing models fared before and during the financial crisis. Comparing our model prices to market synthetic CDO prices, we investigate how well these pricing models captured the underlying financial risks of trading in CDOs.
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Includes bibliographical references.
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Muzenda, N. 2013. Analysis of CDO tranche valuation and the 2008 credit crisis. University of Cape Town.