Solve (5.12), first in Excel and then with solveQP(). How do we need to rewrite (5.12) in the case of different upper and lower costs of mean deviations? Download data on a high yield corporate bond...

Solve (5.12), first in Excel and then with solveQP(). How do we need to

rewrite (5.12) in the case of different upper and lower costs of mean

deviations?

Download data on a high yield corporate bond index.

(a) Calculate the value of tranches within a standard CDO that is financed

via equity (taking the first 5% losses), mezzanine debt (taking the next

10% of losses), and senior debt. Assume a risk-free rate of 3% and use

Monte Carlo simulation.

(b) Use the option prices of (a) to generate scenarios that are consistent

with CDO pricing.

(c) Add at least two more asset classes to the junior note and construct a

CVaR efficient frontier.

(d) How does the CVaR frontier differ from a mean-variance frontier?