Copula based simulation procedures for pricing collateralised debt obligations
The aim of this paper is to study the impact of structure of dependency on the pricing of multi-name credit derivatives such as collateralised debt obligations (CDO). The correlation between names defaulting has an effect on the value of the basket credit derivatives. We present a copula based simulation procedure for pricing CDO under different structure of dependency and assessing the influence of different price drivers (correlation, hazard rates and recovery rates) on modelling portfolio losses. Gaussian copulas and Monte Carlo simulation are widely used to measure the default risk in basket credit derivatives. Many studies have shown that many distributions have fatter tails than those captured by the normal distribution. We use distributions with fat tails such as the t-student distribution. The paper has several practical implications that are of value for financial hedgers and engineers, financial regulators, central banks, and financial risk managers.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 2 (2010)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.inderscience.com/browse/index.php?journalID=286|
When requesting a correction, please mention this item's handle: RePEc:ids:injams:v:2:y:2010:i:3:p:239-261. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Graham Langley)
If references are entirely missing, you can add them using this form.