NDLI: Using Dynamic Copula Method for CDO Pricing

Content Provider	IEEE Xplore Digital Library
Author	Zezheng Li Ping Li
Copyright Year	2009
Abstract	This paper extends the copula method in CDO pricing to dynamic copula model. As one can see, financial data often cover a long time period and dependent structure between different time series always tends to change instead of to keep static. So using dynamic copula model to price CDO is much more accurate than traditional static one. In our work, we apply GOF test and binary segmentation procedure to detect the change of copula function. The result shows that in different time period, the best copula fitting for data set is not static, thus the expected loss and fair spread varies from one stage to another one. Our empirical research shows that fair spread of each tranches varying from different stages. This explains why CDO is so popular and profitable in the past year, but its investors suffered so much when financial crisis happened.
Starting Page	4618
Ending Page	4621
File Size	284418
Page Count	4
File Format	PDF
ISBN	9781424449095
e-ISBN	9781424457281
DOI	10.1109/ICISE.2009.1328
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	2009-12-26
Publisher Place	China
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Information science Engineering management Pricing Tail Conference management Gaussian distribution Aerodynamics Probability distribution Portfolios Testing
Content Type	Text
Resource Type	Article

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