11.3
CDO Carry Senior/Mezzanine
PYTHON PLUGIN
Structured
Carry
Description
Strategy 11.3: Sell senior/mezzanine CDO tranche, delta-hedge with long CDS index
Strategy Logic
Strategy 11.3: CDO Carry - Senior / Mezzanine Tranche.
Sell a high-quality (senior or mezzanine) CDO tranche and delta-hedge
by buying the CDS index. The opposite of the equity-tranche strategy:
senior-tranche spreads tend to be tight, and the short position collects
premium when spreads revert to normal levels.
Signal: SHORT the tranche when its spread is tight (below historical
average by a threshold), and buy the CDS index as hedge.
Required columns: tranche_spread, index_spread, risky_duration,
index_duration
Parameters
| Parameter | Default Value | Type |
|---|---|---|
| lookback | 120 | int |
| entry_z | -1.0 | float |
| exit_z | 0.0 | float |
Risk Configuration
| Risk Parameter | Value |
|---|---|
| Max Position Pct | 5.0% |
| Stop Loss Pct | 10.0% |
| Take Profit Pct | 12.0% |
| Max Drawdown Pct | 18.0% |