The question of how to value structured credit products has never been more urgent.

This multi-contributor book successfully brings together cutting-edge, current research from a broad spectrum of leading academics and practitioners in the field to fully examine CDOs and provide expert practical guidance.

The Definitive Guide to CDOs will deliver, to both practitioners and academics, the full range of current ideas and the newest innovations surrounding this important topic. It provides you with all the essential analysis concerning the CDO sector including:

• A comprehensive overview of the market and application of CDOs, which will help the less experienced reader get up-to-date on the subject.
• An analysis of the severe 2005 and 2007 CDO crises.
• A clear picture of the current status of the market.
• A technical overview of CDO hedging approaches.
• An analysis of the current CDO valuation approaches, such as the One-Factor Gaussian Copula Model, Copula extensions, Levy processes, Markov Models, as well as CDO squared and CPDO valuation.
• Insight into the risks, challenges and market outlook.

Recommended reading for anyone trying to stay ahead in the rapidly changing CDO market, including CDO investors and analysts, brokers and dealers, investment bankers, accountants, asset managers, collateral managers, credit enhancers, portfolio managers, trustees, structurers and risk managers.

Section 1: The CDO Market and Application

1 The Evolution of CDOs - From the Bistro to CDO2
Brenda Boultwood; Gunter Meissner

2 The Application of CDOs
Gunter Meissner

Section 2: Basic Properties of CDO Valuation

3 An Overview on Copula Function Methods in Credit Portfolio Modelling
David Li

4 The Underlying Dynamics of Credit Correlations
Arthur Berd; Robert Engle; Artem Voronov

5 Dynamic Conditioning and Credit Correlation Baskets
Claudio Albanese, Alicia Vidler

6 Approaches to Generate the Loss Distribution
Peter Grundke; Thomas Moosbrucker

7 Modeling non-normal CDO returns with the Omega Function
Ranjan Bhaduri, Gunter Meissner

Section 3: CDO Valuation Approaches

8 The market standard model for valuing CDOs, the OFGC (one-factor Gaussian copula model) - Benefits and Limitations
Gunter Meissner

9 From implied correlation to base correlation
Jon Gregory

10 Factor Models for CDO Pricing
Leif Andersen and Victor L. Piterbarg

11 Levy Processes for the Valuation of CDO Tranches
Thomas Moosbrucker

12 Markov Models for CDOs
Erik Schlögl

13 CDOs-Squared: Time for an Autopsy?
Michiko Whetten

14 Constant Proportion Debt Obligation - An Introduction
Martin Hellmich, Stefan Kassberger

15 A comparative analysis of CDO pricing models
X. Burtschell; Jon Gregory; Jean-Paul Laurent

16 CDO Valuation: Fact and Fiction
Robert A. Jarrow; Li Li, Mark Mesler, Donald R. van Deventer

Section 4: Hedging of CDOs

17 Hedging issues for CDOs
Areski Cousin and Jean-Paul Laurent

18 Hedging CDOs in the one-factor Gaussian copula framework
Gunter Meissne; Richard Hector, Thomas Rasmussen

Section 5: Rating approaches, Regulatory issues, and Model validation

19 A Comparative Analysis of Fitch's, Moody's, and Standard & Poor's CDO Rating Approaches
Gunter Meissner, Tim Garnier, Tobias Laute

20 The Treatment of CDOs in Basel II
Martin Brodka & Linda Urban
21 Counterparty credit risk of CDO tranches under Basel II's
Niall Whelan
22 Model Validation and CDOs - An Overview of Requirements and Methods
George Neal

Section 6: The Future of CDOs
23 CDOs - Risks, Challenges and Market Outlook
David M. Rowe; Cyril Deretz

Index

Editor Gunter Meissner is an associate professor of finance at Hawaii Pacific University. He is also president of Derivatives Software, which specialises in software for standard and exotic options and swaps; VaR models, term structure based models as well as credit derivatives and weather derivatives. Gunter has held a number of visiting professor positions at universities including: McMaster, University of Technology Sydney, Thammasat University Thailand and Ecole Nationale des Ponts et Chaussées, Tokyo and NYU New York. Prior to working within academia Gunter was head of options at Deutsche Bank, Tokyo from 1994-1996. He was head of product development at Deutsche Bank, Frankfurt and an interest rate derivatives trader for Deutsche Bank, in both Frankfurt and New York.