Title: Lévy Base Correlation
Authors: Garcia, Joao
Goossens, Serge
Masol, Viktoriya
Schoutens, Wim
Issue Date: 4-Sep-2007
Publisher: K.U.Leuven Section of Statistics Technical Report
Series Title: vol:07 issue:06
Abstract: In this paper we investigate one factor models that extend the classical Gaussian copula model for pricing CDOs. The proposed models are very tractable and perform significantly
better than the classical Gaussian copula model. Moreover, we introduce the concept of Levy base correlation. The obtained Lévy base correlation curve is much flatter than the corresponding Gaussian one. This indicates that the models do fit the observed data much better.
Additionally, flat base correlation curves are also much more reliable for pricing of bespoke tranches.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Statistics Section

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