11.4
CDO Carry Tranche Hedging
PYTHON PLUGIN
Structured
Carry
Description
Strategy 11.4: Buy low-quality tranche, sell high-quality tranche, duration-hedged
Strategy Logic
Strategy 11.4: CDO Carry - Tranche-vs-Tranche Hedging.
Buy a low-quality tranche, sell a high-quality tranche. Hedge ratio
equals the ratio of risky durations:
h = D_low / D_high
Signal: enter the trade when the spread differential between the two
tranches widens beyond its historical normal range.
Required columns: low_tranche_spread, high_tranche_spread,
low_duration, high_duration
Parameters
| Parameter | Default Value | Type |
|---|---|---|
| lookback | 120 | int |
| entry_z | 1.5 | float |
| exit_z | 0.0 | float |
Risk Configuration
| Risk Parameter | Value |
|---|---|
| Max Position Pct | 5.0% |
| Stop Loss Pct | 8.0% |
| Take Profit Pct | 12.0% |
| Max Drawdown Pct | 15.0% |