Bespoke CDO

DEFINITION of 'Bespoke CDO'

A type of collateralized debt obligation (CDO) that a dealer creates for a specific group of investors. The CDO is structured according to the investors' needs. The investor group then typically buys a single tranche of the bespoke CDO. The remaining tranches are then held by the dealer, who will usually attempt to hedge against losses.

BREAKING DOWN 'Bespoke CDO'

Bespoke CDOs are a relatively new instrument in the financial world. They allow investors to target very specific risk/return profiles for their investment strategies or hedging requirements. Typically there is little to no secondary market for bespoke CDOs, so pricing must be calculated based on complex theoretical financial models.