A Modification to the Copula Approach for Pricing Correlation-Dependent Credit Derivatives
- Chih-Wei Lee 0, Cheng-Kun Kuo
- Corresponding Author
- Chih-Wei Lee
0National Taipei College of Business
Available Online undefined NaN.
- https://doi.org/10.2991/jcis.2006.27How to use a DOI?
- copula, default correlation
- This paper proposes a modified copula approach to defining correlation dependence used for pricing credit derivatives. For both single-name and multiname products, how default correlations react to common shocks should be appropriately measured. The copula approach is an effective method for this purpose. However, in the currently available copula models, usually positive default correlations are allowed, or are relatively easy to implement. Consequently, these models may not provide sufficient information for pricing credit derivatives with mutually dependent defaults. In this paper, we explicitly define a default correlation structure that allows opposite response to a common factor. Using an exponential copula model as illustration, we show the modification is a more comprehensive description of default dependence found in market.
- Open Access
- This is an open access article distributed under the CC BY-NC license.
Cite this article
TY - CONF AU - Chih-Wei Lee AU - Cheng-Kun Kuo PY - NaN/NaN DA - NaN/NaN TI - A Modification to the Copula Approach for Pricing Correlation-Dependent Credit Derivatives BT - 9th Joint International Conference on Information Sciences (JCIS-06) PB - Atlantis Press UR - https://doi.org/10.2991/jcis.2006.27 DO - https://doi.org/10.2991/jcis.2006.27 ID - LeeNaN/NaN ER -