2001•Financial Analysts JournalRequires access

Risk and Valuation of Collateralized Debt Obligations

Darrell Duffie, Nicolae Bogdan Garleanu

Abstract

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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Key concepts: Collateralized debt obligation, Valuation (finance), Actuarial science, Collateral, Business, Debt, Credit derivative, Credit risk