delta and gamma for CDO

euro1545 · January 27th, 2005, 8:28 pm

I can calulate a delta for a cdo as follows: [MtM2 -MtM1]/1bp *PV01(ith single name CDS). Where MtM2 is price after a small shift in the ith spread; MtM1 is price before any shift. I can likely calculate the gamma using this kind of finite method. However, if given only the levrage of the tranche and the delta notional of the ith asset in the underlying pool how do I get the delta of the tranche?

newbee · January 28th, 2005, 5:53 pm

This topic is very interesting; one can consider sensitivities toseveral different input parameters. I would also like to hear opinionsof people already involved in this type of work; I would like to knowhow they consider sensitivities to different defaults, correlation curvesetc.

Stefanone · January 28th, 2005, 6:00 pm

x EuroJust to be clear on the terminology:Leverage= Average[% single name deltas] / % Tranche WidthOfetn people call leverage also Tranche delta.Hope it helps,S