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Suppose that the principal assigned to the senior mezzanine and equity tranches is 85%, 5% and 10% instead of 75%, 20% and 5%, In the figure below,...

Suppose that the principal assigned to the senior mezzanine and equity tranches is 85%, 5% and 10% instead of 75%, 20% and 5%, In the figure below, how are the results in the table affected.

10% 25% 100% 100% 0%
15% 50% 100% 100% 33%
20% 75% 100% 100% 67%
25% 100% 100% 100% 100%

75 to 85 20 to 5 5 to 10


Suppose that Gaussian copula model with a default correlation of 0.4 is used to define correlation in a 125 – company synthetic CDO. The probability of default for each company during 5 year is 6%. What is the probability of more than 10 default during the 5 year period when the factor F in equation (10 .9 ) is (a)-2, (b)-1, (c)0, (d) +1 and (e) +2?

This question was asked on Jan 27, 2013.

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