Hedging tranches index products : illustration of model dependency

Dominique Guegan (1) , Julien Houdain (1)

1 CES - Centre d'économie de la Sorbonne

In this paper, index tranches'properties and several hedging strategies are discussed. Model risk and correlation risk are analysed through the study of the efficiency of several factor based copula models, like the Gaussian, the double-t and the double NIG using implied correlation and a particular NIG one factor model, using historical data in terms of hedging capabilities.

Mots clés: CDO; Factor models; NIG distribution

Domaines: Economies et finances; Probabilités [math.PR]; Statistiques [math.ST]; Théorie [stat.TH]

Dominique Guegan, Julien Houdain. Hedging tranches index products : illustration of model dependency. The Icfai Journal of derivatives markets, 2006, 4, pp.39 - 61. ⟨halshs-00179325⟩