The pricing of collateralized debt obligations (CDOs) was analyzed using a three-factor credit model. The model considered firm-specific, industry, and economywide default events, explaining most of the variation in CDX index tranche prices. Tranches are priced as if losses of 0.4%, 6%, and 35% of the portfolio occur with expected frequencies of 1.2, 41.5, and 763 years, respectively. Firm-specific default risk accounts for 65% of the CDX spread, industry or sector risk for 27%, and catastrophic or systemic risk for 8%. Recently, firm-specific default risk has become more significant.