The Analysis Of CDO Pricing Method Based On Factor Copula Model

The Collateralized Debt Obligation (CDO) is a kind of financial derivatives. It is a kind of asset-backed securities. It developed very fast in the last ten years. By the nature it is a stack of debt. Those debt is different from each other, so the combination of them will have a low risk and rise the credit of the asset. In the end it will provide investors with stable cash flow. CDO developed very fast because it is flexible and easy to get profit.It is very hard to regulatory for the identity of derivative. So in the2007finacial crisis, the Collateralized Debt Obligationact a very bad role. It promote crisis to be more serious, and the damage become lager and larger. For the bad actions in Financial crisis, people start to question the develop of CDO. But we have to say that the wrong is not from CDO, but from the regulatory.The derivatives’indentity will proliferat the risk, but it promote the crisis is because the greedy of people and the missing of regulatory. The greedy of people make the lever of derivatives very large. The large lever make the risk serious. And its financialderivativeis invaluable not easy to control the problem,but it has a more active financial markets, make an inventory of financial transactions, and to promote the role of the investment, even at the macro level in terms of its likely have to improve SME financingdilemma in the role.The introduction of the combination of financial derivatives is the inevitable trend of development of China’s financial markets.So the situation of China’s CDO products, regulatory mechanisms and pricing theory to study to become an essential research topic. This paper first introduces the CDO products in recent years and the development trend of the basic situation, and from the root of analyzes its as a financial derivatives, the composition and operation mechanism.Based on the fundamental analysis, we can grasp the context of basic CDO products.Through the analysis of its development trend we can know it in the financial markets and play a role in the effects of. We can through the past CDO product development to know CDO products advantages and disadvantages. And can learn from its good function and role of our advantage, which the country’s financial markets can have a better development and progress, and promote the healthy development of China’s economic stability.We can pay attention to the western developed country to CDO products and other financial derivatives attitude changes the fundamental change. In the financial crisis, the U.S. government for financial derivatives regulatory completely has had the archery target change, and this kind of change is to standardize financial derivatives market the most important. It is also what we should research and reference.Our country in establishing a CDO before the market must have a perfect and reasonable supervision system and regulatory measures. Only in this way can really promote the improvement of the investment environment and the development of financial market.This paper reference and compared before and after the financial crisis the CDO products regulatory changes. Strive to contribute for China’s financial derivatives regulatory system, legal system and regulate the construction of regulations.Then this paper has issued class CDO products are analyzed. From our country characteristic of financial market and economic give CDO development suggestions and prospects. Through to our country issued CDO products analysis we can see that China’s financial institutions and investors to the attitude of the derivatives. And through the analysis of different subject matter of the asset pool CDO products can also to our country economy development and the development of financial market have a more in-depth understanding.Pricing is one of the most important linkon the financial derivatives development. Based on the reference to previous pricing model and financial crisis CDO products performance, this paper puts forward a more perfect factor Copula pricing model.The model in order to improve the asset pool asset price changes tail correlation problem of poor, the introduction of the standard inverse gaussian distribution replace the normal distribution assumption, this can improve the CDO products for super senior pricing to provide the possibility.At the same time, this paper, by using variable factor coefficient way, hope that through under different conditions of different factor coefficient different manifestations of different correlation. The proposed model can analytic pricing CDO products, more flexibility.The model is more perfectable CDO pricing model.