Title :
Mixed Copula Model with Random Recovery Rate for CDO Pricing
Author :
Chen, Jianli ; Liu, Wenqiong ; Li, Shenghong
Author_Institution :
Dept. of Math., Zhejiang Univ., Hangzhou, China
Abstract :
This paper presents a new factor copula model for pricing CDO tranches, where the involved distributions are mixtures of Gaussian distribution and VG distribution. Besides, random recovery rate is introduced into the mixed copula framework to effectively model "correlation smile" in CDO pricing. Numerical analysis shows that the new model may better simulate the loss distribution of the reference assets pool and the fairy credit spread of the CDO tranche.
Keywords :
Gaussian distribution; asset management; numerical analysis; pricing; random processes; CDO tranche pricing; Gaussian distribution; VG distribution; correlation smile model; credit derivatives markets; factor copula model; fairy credit spread; mixed copula model; numerical analysis; random recovery rate; reference assets pool; Computational modeling; Correlation; Gaussian distribution; Mathematical model; Numerical models; Portfolios; Pricing; CDO; G-VG copula model; correlation smile; random recovery rate;
Conference_Titel :
Computational and Information Sciences (ICCIS), 2012 Fourth International Conference on
Conference_Location :
Chongqing
Print_ISBN :
978-1-4673-2406-9
DOI :
10.1109/ICCIS.2012.182
