Comparative Analyses of Correlation Skew Models
Date Issued
2008
Date
2008
Author(s)
Su, Yong-Jhih
Abstract
In this work, we present a comparative analysis of correlation skew models for pricing of CDOs. All of these models are based on the factor copula pricing frameworknd can generate correlation skews. The models compared are normal inverse Gaussian copula, stochastic correlation model and local correlation model. By using Gaussian copula as benchmark, the fitness of these models to market data will be tested. Because the subprime mortgage crisis causes structural changes on the credit derivatives market,he fitness before the crisis and after the crisis is compared. Finally, the stability of parameter values over time will be given.
Subjects
synthetic CDO
correlation smile
probability bucketing
NIG copula
stochastic correlation
local correlation
Type
thesis
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