Encyclopedia of Quantitative Finance, IV Volume Set

Macaulay Duration see Bond

Malliavin Calculus Method seeSensitivity Computations:Integration by Parts

Managed CDO

General Definition

A managed (or “active”) collateralized debt obligation (CDO) is a large-scale securitization transaction that is actively arranged and administered to unbundle, transform, and diversify financial risks from a dynamic reference portfolio of one or more credit-sensitive asset classes (associated with different creditors, countries, and/or industry sectors). Although the type(s) of asset(s) in the reference portfolio are known and fixed through the life of the CDO, the underlying collateral of a managed CDO is variable.

Types of Managed CDOs

In general, CDO Managers operate under investment guidelines that are defined in the governing documents of the CDO transaction. Managers adjust the investment exposure over time to meet a prespecified risk–return profile and/or achieve a certain degree of diversification in response to changes in risk sensitivity, market sentiment, and/or timing preferences. These guidelines specify parameters for the initial portfolio (during the “ramp-up phase”, see below) but not the exact composition, for example, a minimum average rating, a minimum average yield, a maximum average maturity, and a minimum degree of diversification. As opposed to a static CDO, managers monitor and, if necessary, trade assets within the reference ...