Estimating CDOs Expected Losses via a Monte Carlo Simulation

This CDO Monte Carlo pricer estimates tranche-level expected losses and default probabilities using a one-factor Gaussian copula framework. Individual obligor default probabilities are inferred from credit spreads and recovery assumptions, while dependency across names is introduced through a common systematic risk factor. By simulating thousands of correlated default scenarios, the model constructs the portfolio loss distribution and allocates losses across tranches based on their attachment and detachment points. The tool provides a transparent and intuitive way to understand how correlation, credit quality, and capital structure impact structured credit risk.