The document discusses using copula functions to model the cross-sectional and temporal dependence of losses for CDO tranches. It proposes representing the dependence between increments of losses over time periods and cumulative losses at the start of periods through copula functions. This allows constructing a recursive algorithm to compute the propagation of losses over time and derive a term structure of tranche premiums consistent with the cross-sectional and temporal dependence structure. The approach must be modified for credit losses due to losses being bounded, including constraints in the algorithm.
Human Factors of XR: Using Human Factors to Design XR Systems
Modeling Temporal Dependence of CDO Losses Using Copula Functions
1. A Copula-Based Model of the Term Structure of CDO Tranches U. Cherubini – S. Mulinacci – S. Romagnoli University of Bologna International Financial Research Forum Paris, 27-28 March 2008
![Outline ,[object Object],[object Object],[object Object],[object Object],[object Object]](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)