Valuation and management of credit derivatives: synthetic CDOs or the exponential growth of correlation products.

Summary This thesis is based on the use of quantitative methods for the valuation and management of synthetic CDO structures. We illustrate the limitations of standard approaches and develop an innovative valuation method based on the use of the inverse normal Gaussian (ING) distribution and historical correlation levels. We compare these different approaches and study their impact on tranche management. We then extend our research to CDO^2 tranches and develop two original methods for the valuation of these products. Finally, we study the opportunities offered by the management and hedging of standardized tranches of CDS indices and illustrate more precisely two sources of risk in addition to credit risk: model risk and correlation risk.