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Credit Correlation:Life After Copulas

Editor

Listed:
  • Alexander Lipton
    (Merrill Lynch International, UK)

  • Andrew Rennie
    (Merrill Lynch International, UK)

Abstract

The recent growth of credit derivatives has been explosive. The global credit derivatives market grew in notional value from $1 trillion to $20 trillion from 2000 to 2006. However, understanding the true nature of these instruments still poses both theoretical and practical challenges. For a long time now, the framework of Gaussian copulas parameterized by correlation, and more recently base correlation, has provided an adequate, if unintuitive, description of the market. However, the increased liquidity in credit indices and index tranches, as well as the proliferation of exotic instruments such as forward starting tranches, options on tranches, leveraged super senior tranches, and the like, have made it imperative to come up with models that describe market reality better.

Individual chapters are listed in the "Chapters" tab

Suggested Citation

  • Alexander Lipton & Andrew Rennie (ed.), 2007. "Credit Correlation:Life After Copulas," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6559.
    • Handle: RePEc:wsi:wsbook:6559
    as

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