This study concerns pricing and risk measuring of Collateralized Debt Obligations (CDOs) by using... more This study concerns pricing and risk measuring of Collateralized Debt Obligations (CDOs) by using a L'evy distribution/process. The paper provides a framework to price CDOs using an asymmetric depencence structure based on the Meixner distribution since it processes desirable properties such as fat-tail, skewness, and jump component. Moreover, it is relatively simple to implement comparing to other Levy processes. it is shown that the Meixner distribution can be applied to both copula and structural form approaches. Using the prices of CDOs on the CDX NA IG, the performances of the proposed models are examined and compared to those of standard models such as Gaussian copula model, double-t copula model, and correlated Brownian motion structural model. It is found that the Meixner-based models have the edge over the standard models in all cases in terms of the mean absolute pricing errors (MAPEs). Using the paired Z-test also confirms that the proposed models seem to outperform t...
In 2007, Stock Exchange of Thailand lists ThaiDEX SET50 Exchange Traded Fund (TDEX), its first eq... more In 2007, Stock Exchange of Thailand lists ThaiDEX SET50 Exchange Traded Fund (TDEX), its first equity Exchange Traded Fund (ETF) that is designed to track SET50 index. Futures contracts with SET50 index as the underlying asset are in existent since 2006. This paper studies an impact such a listing of TDEX might have on index arbitrage activity. In a market without friction, mispricing between futures and the underlying index should be eliminated instantaneously by arbitrageurs. As a result, futures prices and index level will have a certain relationship according to the cost-of-carry model. However, in a real market situation, what seems like mispricing might persist due to limits to arbitrage. Since the introduction of TDEX can potentially relaxes some of those limits, we expect the mispricing to be less persistent after the introduction of TDEX. To quantitatively measure the responsiveness that prices adjust to mispricing, we apply an error correction model to daily data of SE...
This article provides an alternative framework to price Collateralized Debt Obligations (CDOs) ba... more This article provides an alternative framework to price Collateralized Debt Obligations (CDOs) based on a special case of Lévy distributions called a Meixner distribution. The proposed distribution has desirable properties such as skewness and fat tails. More importantly, it is relatively simple to implement compared to other Lévy distributions and is applicable to both copula-based and structural form approaches. Using the historical prices of CDOs on the CDX NA IG, we examine the performances of the proposed models in comparison to those of standard models such as Gaussian copula model, double-t copula model, and correlated Brownian motion structural model. In terms of the mean absolute pricing errors (MAPEs), Meixner-based models outperform standard models. We also examine the risk measures of the models and find that the risk measures from Meixner-based models are more reasonable than those of the standard models.
This study concerns pricing and risk measuring of Collateralized Debt Obligations (CDOs) by using... more This study concerns pricing and risk measuring of Collateralized Debt Obligations (CDOs) by using a L'evy distribution/process. The paper provides a framework to price CDOs using an asymmetric depencence structure based on the Meixner distribution since it processes desirable properties such as fat-tail, skewness, and jump component. Moreover, it is relatively simple to implement comparing to other Levy processes. it is shown that the Meixner distribution can be applied to both copula and structural form approaches. Using the prices of CDOs on the CDX NA IG, the performances of the proposed models are examined and compared to those of standard models such as Gaussian copula model, double-t copula model, and correlated Brownian motion structural model. It is found that the Meixner-based models have the edge over the standard models in all cases in terms of the mean absolute pricing errors (MAPEs). Using the paired Z-test also confirms that the proposed models seem to outperform t...
In 2007, Stock Exchange of Thailand lists ThaiDEX SET50 Exchange Traded Fund (TDEX), its first eq... more In 2007, Stock Exchange of Thailand lists ThaiDEX SET50 Exchange Traded Fund (TDEX), its first equity Exchange Traded Fund (ETF) that is designed to track SET50 index. Futures contracts with SET50 index as the underlying asset are in existent since 2006. This paper studies an impact such a listing of TDEX might have on index arbitrage activity. In a market without friction, mispricing between futures and the underlying index should be eliminated instantaneously by arbitrageurs. As a result, futures prices and index level will have a certain relationship according to the cost-of-carry model. However, in a real market situation, what seems like mispricing might persist due to limits to arbitrage. Since the introduction of TDEX can potentially relaxes some of those limits, we expect the mispricing to be less persistent after the introduction of TDEX. To quantitatively measure the responsiveness that prices adjust to mispricing, we apply an error correction model to daily data of SE...
This article provides an alternative framework to price Collateralized Debt Obligations (CDOs) ba... more This article provides an alternative framework to price Collateralized Debt Obligations (CDOs) based on a special case of Lévy distributions called a Meixner distribution. The proposed distribution has desirable properties such as skewness and fat tails. More importantly, it is relatively simple to implement compared to other Lévy distributions and is applicable to both copula-based and structural form approaches. Using the historical prices of CDOs on the CDX NA IG, we examine the performances of the proposed models in comparison to those of standard models such as Gaussian copula model, double-t copula model, and correlated Brownian motion structural model. In terms of the mean absolute pricing errors (MAPEs), Meixner-based models outperform standard models. We also examine the risk measures of the models and find that the risk measures from Meixner-based models are more reasonable than those of the standard models.
Uploads
Papers by Anant Chiarawongse