Fast solution of the Gaussian copula model
Econometrics and Risk Management
ISBN: 978-1-84855-196-1, eISBN: 978-1-84855-197-8
Publication date: 1 December 2008
Abstract
This article describes a new approach to compute values and sensitivities of synthetic collateralized debt obligation (CDO) tranches in the market-standard, single-factor, Gaussian copula model with base correlation. We introduce a novel decomposition of the conditional expected capped portfolio loss process into “intrinsic value” and “time value” components, derive a closed form solution for the intrinsic value, and describe a very efficient computational scheme for the time value, taking advantage of a curious time stability of this quantity.
Citation
Flesaker, B. (2008), "Fast solution of the Gaussian copula model", Fouque, J.-P., Fomby, T.B. and Solna, K. (Ed.) Econometrics and Risk Management (Advances in Econometrics, Vol. 22), Emerald Group Publishing Limited, Leeds, pp. 1-13. https://doi.org/10.1016/S0731-9053(08)22001-3
Publisher
:Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited