adehbone

1. I would say the synthetic CDO would hold more risk since there is always the possibility of the counterparty not fulfilling their end of the deal.
2. Credit risk to the senior tranches will be reduced if credit tranching is employed. In that case, the subordinate tranches would absorb the losses first.
3. I don’t understand why you would want to multiply r^2 by alpha, it is the coefficient of determination.
4. Beta is 1 for that specific factor, while all the other factor sensitivities are 0. The factor portfolio is a special type of tracking portfolio in which the goal is to have a beta of 1 for a specific factor and 0 for the rest of the factors. That is not necessarily the case for a tracking portfolio, where you are trying to track a benchmark.
5. The goal of a market neutral strategy is to reduce portfolio beta to 0, assuming IBM and Microsoft can perfectly hedge each other. In reality, this is extremely difficult to do since beta is constantly changing.
6. I can’t say I’ve heard of VaR measuring credit risk specifically. It just seems as a superior method of measuring downside risk as opposed to maximum drawdown.