Abstract
This chapter introduces the basic framework for synthetic CDO pricing and the popular one factor Gaussian model of correlated defaults. The central results for the analytical calculation of the portfolio loss distribution under the assumption of the large homogeneous portfolio are presented and generalized for arbitrary distributions. Further, we discuss the problems of the one factor model with the Gaussian distribution, as well as the attempts to fix them with the help of implied and base correlations.
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Notes
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⌊a⌋ denotes the floor of a real number which is the largest integer not exceeding a.
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© 2011 Springer Berlin Heidelberg
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Schlösser, A. (2011). One Factor Gaussian Copula Model. In: Pricing and Risk Management of Synthetic CDOs. Lecture Notes in Economics and Mathematical Systems, vol 646. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-15609-0_4
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DOI: https://doi.org/10.1007/978-3-642-15609-0_4
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Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-15608-3
Online ISBN: 978-3-642-15609-0
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