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Investigators from Zhejiang University Have Reported New Data on Economic Modelling (Mixed copula model with stochastic correlation for CDO pricing)

August 1, 2014



By a News Reporter-Staff News Editor at Economics Week -- Data detailed on Economic Modelling have been presented. According to news reporting from Hangzhou, People's Republic of China, by VerticalNews journalists, research stated, "This paper deals with the problem of pricing credit derivatives portfolio-CDO. The article assumes that the systematic factor and idiosyncratic factors subject to the fat-tailed mixed G-VG distribution instead of the traditional Gaussian distribution in the framework of factor model."

The news correspondents obtained a quote from the research from Zhejiang University, "Thus, the G-VG copula model is established. Stochastic correlation is also incorporated to account for the correlation skew problem. The semi-analytical expressions for conditional default probability, cumulative loss distribution function and expected tranche loss are explicitly derived in the G-VG copula models under large homogeneous portfolio approximation. Thus the CDO price can be determined. The numerical analysis is carried out and the properties of the new models with those of the traditional models are compared."

According to the news reporters, the research concluded: "Results show that new models not only provide a closer fit to the market quotes, but also bring more flexibility into the dependence structure."

For more information on this research see: Mixed copula model with stochastic correlation for CDO pricing. Economic Modelling, 2014;40():167-174. Economic Modelling can be contacted at: Elsevier Science Bv, PO Box 211, 1000 Ae Amsterdam, Netherlands. (Elsevier - www.elsevier.com; Economic Modelling - www.elsevier.com/wps/product/cws_home/30411)

Our news journalists report that additional information may be obtained by contacting J.L. Chen, Zhejiang University, Dept. of Math, Hangzhou 310027, Zhejiang, People's Republic of China. Additional authors for this research include Z. Liu and S.H. Li.

Keywords for this news article include: Hangzhou, People's Republic of China, Asia, Economic Modelling

Our reports deliver fact-based news of research and discoveries from around the world. Copyright 2014, NewsRx LLC


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Source: Economics Week


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