Hedging CDOs - Hull-White model - Probability Bucketing

KMED · July 7th, 2005, 9:12 am

Hi,I am implementing Hull-White CDO model with Probability Bucketing ( Appendix B) based on the article "Valuation of a CDO and an nth to Default CDS Without Monte Carlo Simulation". Hull-White speek about an analogous approach to calculate the impact of removing a company from the portfolio. This is useful in the calculation of Greek letters.Does anyone tried to calculate Greek letters. What are the probability updating formulas?Thanks

gulati · July 18th, 2005, 7:56 pm

Refer to CDO delta calculation thread.

KMED · July 19th, 2005, 7:26 am

I am working on the model of Hull and White and I seek a fast method of calculation of the sensitivities.The ideal for me is to reverse the algorithm of Bucketing proposed by Hull to be able to change the spread of a single name on my basket by shifting it by 1bp. I need the formulas of inversion of this algorithm if they exist.Thanks

wahoo2000 · July 19th, 2005, 10:37 am

What do you mean the inversion of the algorithm? S-DV01 and I-DV01 are usually calculated by "bumping" the spread of all names or a single curve by a basis point and repricing. There should be an efficient way to do this using the H-W frame work, so you don't actually have to rerun the entire priicing algorithm 101 times.

KMED · July 20th, 2005, 7:12 am

Exactly, I seek this efficient way. So I need the formulas for updating my Bucketing Algorithm which enable me to remove a name from the basket and then to add it with a different spread.Thanks

Tweety893 · March 30th, 2007, 6:30 am

Hey guys,could you please please help me? I'm also doing the Probability Bucketing (Appendix B) stuff. But now I'm stuck trying to remove a company afterwards. How do the formulas change? In my prog (C++) I would need old data that I can't save till then.So has anyone done it yet? And could you give me some ideas? Please!Thanks

Tweety893 · April 2nd, 2007, 7:18 am

Hmm, just for the ones, who may read or think about this topic someone: Now I'm quite sure, that it's not possible to remove a name in the same way (or an analogous way) than adding it. We would need all the data from the shifts done until now. And that's quite impossible (or would take too much time and space).So I think for removing a name, just delete it from the input-file and compute the stuff again.Fondest Greetings,Tweety