A General Review of CDO Valuation Methods

Abstract

Many investors rely on third-party (dealer) valuation of their CDO positions to satisfy accounting regulations, but there is ambiguity around how the values are derived. This article is intended to clarify the valuation process. In the article, three common CDO valuation techniques are reviewed: net asset value (NAV) analysis, cash flow analysis, and comparables analysis. Frequently asked questions are answered at the end of the article.