%0 Journal Article %1 CollinDufresne:JF:2012 %A Collin-Dufresne, Pierre %A Goldstein, Robert S. %A Yang, Fan %D 2012 %I Blackwell Publishing Inc %J The Journal of Finance %K cdo disaster option-implied %N 6 %P 1983-2014 %R 10.1111/j.1540-6261.2012.01779.x %T On the Relative Pricing of Long-Maturity Index Options and Collateralized Debt Obligations %U http://dx.doi.org/10.1111/j.1540-6261.2012.01779.x %V 67 %X We investigate a structural model of market and firm-level dynamics in order to jointly price long-dated S&P 500 index options and CDO tranches of corporate debt. We identify market dynamics from index option prices and idiosyncratic dynamics from the term structure of credit spreads. We find that all tranches can be well priced out-of-sample before the crisis. During the crisis, however, our model can capture senior tranche prices only if we allow for the possibility of a catastrophic jump. Thus, senior tranches are nonredundant assets that provide a unique window into the pricing of catastrophic risk.

@article{CollinDufresne:JF:2012, abstract = {We investigate a structural model of market and firm-level dynamics in order to jointly price long-dated S&P 500 index options and CDO tranches of corporate debt. We identify market dynamics from index option prices and idiosyncratic dynamics from the term structure of credit spreads. We find that all tranches can be well priced out-of-sample before the crisis. During the crisis, however, our model can capture senior tranche prices only if we allow for the possibility of a catastrophic jump. Thus, senior tranches are nonredundant assets that provide a unique window into the pricing of catastrophic risk.}, added-at = {2014-11-03T23:17:30.000+0100}, author = {Collin-Dufresne, Pierre and Goldstein, Robert S. and Yang, Fan}, biburl = {https://www.bibsonomy.org/bibtex/24ff0414baf115f17f7a17761bc4f0ea9/fcqms}, description = {On the Relative Pricing of Long-Maturity Index Options and Collateralized Debt Obligations - COLLIN-DUFRESNE - 2012 - The Journal of Finance - Wiley Online Library}, doi = {10.1111/j.1540-6261.2012.01779.x}, interhash = {e1c2b06cfc6d2b491d233c6c3a26bf04}, intrahash = {4ff0414baf115f17f7a17761bc4f0ea9}, issn = {1540-6261}, journal = {The Journal of Finance}, keywords = {cdo disaster option-implied}, number = 6, pages = {1983-2014}, publisher = {Blackwell Publishing Inc}, timestamp = {2014-11-03T23:17:30.000+0100}, title = {On the Relative Pricing of Long-Maturity Index Options and Collateralized Debt Obligations}, url = {http://dx.doi.org/10.1111/j.1540-6261.2012.01779.x}, volume = 67, year = 2012 }