What is tranche correlation in CDOs?

Tranche correlation (base correlation or compound correlation) measures how correlated default events are across the reference portfolio. Higher correlation hurts senior tranches but benefits equity.

What caused CDO losses in 2008?

Models underestimated default correlations in US mortgages. When correlated defaults hit, senior tranches expected to be safe suffered losses far exceeding model predictions.

CDO Tranche Loss Calculator

Model CDO tranche attachment/detachment points, expected losses, and tranche spreads using the Gaussian copula model. Analyze how correlation assumptions affect the relative value of equity, mezzanine, and senior tranches.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to use this calculator

1
Enter your financial figures
Enter income, principal, interest rate, tax year, or relevant financial parameters into the CDO Tranche Loss Calculator.
2
Adjust regional settings
Select your country, tax jurisdiction, filing status, or applicable tax year and rates.
3
Calculate your result
Press Calculate to compute the financial result, tax liability, return, or repayment amount.
4
Review the breakdown
Review the detailed breakdown including totals, effective rates, interest components, and applicable tax implications.

Formula

Result = f(principal, rate, time, jurisdiction)

principal: Initial amount, income, or base value entered into the CDO Tranche Loss.
rate: Interest rate, tax rate, return rate, or growth rate applied per period.
time: Number of periods (years, months, or days) over which the calculation runs.
jurisdiction: Country, tax year, filing status, or regional rules that adjust the calculation.
Result: Computed amount: total, liability, return, repayment, or present/future value.

Financial results are estimates and depend on the accuracy of the inputs and applicable rules.

Glossary and Definitions

Principal: The initial amount of money on which interest, returns, or tax liabilities are calculated.
Interest rate: The percentage charged or earned per period on the principal, expressed as an annual rate unless stated otherwise.
Compounding: The process by which interest is added to the principal so that subsequent interest is earned on the combined amount.
Present value: The current worth of a future sum, discounted at a given rate to account for the time value of money.
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