Financial Risk Manager Part 2
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An endowment fund has sold default protection on the most senior tranche of a CDO. If the default correlation between assets held in the CDO decreases sharply from the correlation used in pricing the CDO tranches, assuming everything else is unchanged, how will the position of the endowment fund be impacted?
An endowment fund has sold default protection on the most senior tranche of a CDO. If the default correlation between assets held in the CDO decreases sharply from the correlation used in pricing the CDO tranches, assuming everything else is unchanged, how will the position of the endowment fund be impacted?
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