부산대학교 도서관

Using implied correlations for evaluating the relative attractiveness of alternative tranched investments has some potential drawbacks. Synthetic collateralized debt obligations (CDO) are instruments whose payouts are linked to the performance of a portfolio of synthetic credit exposures. This market has experienced continuous innovation over the past few years. While in the early days synthetic CDO's were mainly used by banks for capital relief, most of the issuance is now generated by the dealer community in the form of one-off, bespoke tranches referencing investment grade credit default swaps. Unlike the equity options market, where the Black-Scholes model has gained universal acceptance, these models utilized in the CDO market vary across market players and keep evolving over time. Consequently, the implied parameters, which are model dependent, will be different as well. While volatility is a single parameter in equity derivatives models, a typical reference portfolio of a synthetic tranches generally has thousands of pair-wise correlation parameters.