A Framework for Waterfall Pricing Using Simulation-Based Uncertainty Modeling

We present a novel framework for pricing waterfall structures by simulating the uncertainty of the cashflow generated by the underlying assets in terms of value, time, and confidence levels. Our approach incorporates various probability distributions calibrated on the market price of the tranches at inception. The framework is fully implemented in PyTorch, leveraging its computational efficiency and automatic differentiation capabilities through Adjoint Algorithmic Differentiation (AAD). This en...