CDO2 implements dynamic CDO pricing model

Kiesel Scherer model ideal for Credit CPPI

London, 8 January 2008

Creditflux reports on a new structural credit portfolio model which calibrates much more closely to real prices than other recent attempts to do the same thing. The Kiesel Scherer model incorporates a jump diffusion process that models how credits change over time much more realistically than a standard Brownian-motion path.

Pricing analytics software vendor CDO2 has been working to implement the model over recent months. The key advantages of the model are reported to be for deals where the dynamics of spreads are important, such as the quantifying the gap risk on Credit CPPI or pricing options on CDO tranches such as Leveraged Super Senior (LSS) unwind triggers.