Imagine that you have two bonds that you are considering pooling and tranching into a CDO. Each bond pays out $1,000 at

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answerhappygod
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Imagine that you have two bonds that you are considering pooling and tranching into a CDO. Each bond pays out $1,000 at

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Imagine that you have two bonds that you are considering pooling
and tranching into a CDO. Each bond pays out $1,000 at the end
of the period and each bond will default 20% of the time. In case
of default, each bond pays nothing. The bond defaults are
independent. The default probability of the junior tranche
from CDO is
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