Pricing structured products with economic covariates

• 成果类型: Article
• 署名作者: Choi, Yong Seok; Doshi, Hitesh; Jacobs, Kris; Turnbull, Stuart M.
• 署名单位: University of Houston System; University of Houston
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.08.002
• 发表日期: 2020
• 页码: 754-773
• 关键词: Structured product; Collateralized debt obligation; Tranche pricing; Economic determinants; RISK PREMIUMS

摘要

We introduce a top-down no-arbitrage model for pricing structured products. Losses are described by Cox processes whose intensities depend on economic variables. The model provides economic insight into the impact of structured products on financial institutions' risk exposure and systemic risk. We estimate the model using CDO data and find that spreads decrease with higher interest rates and increase with volatility and leverage. Volatility is the primary determinant of variation in tranche spreads. Leverage and interest rates are more closely associated with rare credit events. Model-implied risk premiums and the probabilities of tranche losses increase substantially during the financial crisis. (C) 2019 Elsevier B.V. All rights reserved.