Several models of how to price synthetic CDOs are presented. The study focuses on comparison of classical Gaussian copula with NIG copula, double t-copula and gaussian stochastic correlation model. Because the the t-copula is technically the most demanding of the presented approaches and usually...

This chapter explains how the main types of credit derivatives work and how they are valued. Central to the valuation of credit derivatives is an estimation of the probability that reference entities will default. The chapter discusses both the risk-neutral probabilities of default implied from...