<t>Any suggestion of a good web source for an explanation of how the pricing of European bonds is more mathematically rigorous than the pricing of US bonds? I think the difference in complexity can be attributed to the fact that european bond markets price via futures and TED's, each of which involv...

When one is long the equity tranche of a given CDO, does shorting the senior-most tranche of that CDO result in 1) more risk, and thus potential for greater return 2) a hedge 3) neither?? Please explain.Thanks in advance.

I've never used the Merton Model. Any examples or ideas on where to start?Thx.

How does one go about modeling single-asset CMBS cashflows? Can the Gaussian copula and/or Moody's BET apply? Would I need to set diversity score to near-zero?Thanks

<t>A certain CMBS has a Moody's stressed DSCR of 2.2, put to, as I understandit, make available an extra pool of cash to help meetinterest/principal obligations of the notes. Does this mean thatthe notional amount of the notes or of the underlying revenuestream is overcollateralized? Is the overcoll...

Will do. Thanks Aaron.WCM

Thanks, Aaron. Once I run the Gaussian Copula, how do I convert my output of implied correlation into price? Conversely, how am I to determine implied correlation based on a set price I'm willing to pay for a given tranche?Thanks in advance

Would you mind expanding on this relationship between implied correlation and price, and why the former is often said to suffice in place of the latter?Thx.

Does anyone have a CDO model (in excel) you wouldn't mind posting?Thx

Excellent feedback -- thank you! Do you have an example CDO model (in excel) you wouldn't mind me reviewing?

Must every CDO contain a subordinated, non-rated tranche?

I don't have the formula for BS -- how do I come about your answer?Thanks!

<t>Am I wrong to relate the diversity score to correlation, where the greater the diversity score, the lower is the correlation of the entire reference pool? If not, higher correlation (lower diversity score), whether in the senior or equity tranche, should result in a higher probability of defaults...

Yes, but I'm still unclear as to why "high correlation in the equity tranche = greater likelihood of 0 defaults" and why "high correlation in the senior tranche = greater likelihood of the tranche being impacted"Thanks in advance!

<t>(cont.) .....if the above is true, it's to me counter-intuitive as the equity holds the most defaults -- higher correlation in the subordinate tranche would equate to a higher default probability, and thus less for holders of equity. Under this logic?, the inverse would be true of the senior tran...