ABSTRACT
The CDO market has been deeply and adversely impacted by the last financial crises. In particular, CDO issuances have become quite rare. Nevertheless, there are huge notionals of CDO contracts outstanding and market participants continue to be confronted with the task of hedging and collateralizing their positions in these contracts up to maturity date. Moreover, according to the current regulation (see Basel Committee on Banking Supervision (2011b)), tranches on standard indices and their associated liquid hedging positions continue to be charged as hedge-sets under the internal VaR-based method, which also contributes to making the issue of hedging still important for standardized CDO tranches. For studies of this issue we refer the reader to, among others, Cont and Kan (2011), Cousin, Crépey, and Kan (2012), Laurent, Cousin, and Fermanian (2011) or Frey and Backhaus (2010).
