CDO Pricing With Copula

Collateralized Debt Obligation(CDO) is one of the most innovative and fastgrowing derivative products during the past years.They are enable the efcientrepackage and transfer of credit risk.The pricing of CDO is the difcult issue tosolve all the time.The society pays close attention to the project and the creditderivative products pricing since the crisis of the United State.Copula is the function which connects the marginal distribution with the join-t distribution function.There are many advantages on the analysis of correlationin credit risk.This text applies the Copula to CDO pricing and related analy-sis.Firstly,we introduce the definition,categories and the process of CDO productand point out that the joint default of the pool of underlying instruments(calledcollateral) plays a crucial role in the final results. Then we introduce the Copu-la§including the common copula,especially hierarchical Archimedean copula andVine Copula.At the same time,we introduce the goodness-of-test and the estimatemethods of parameters.In the last,the text applies data of the stock market to construct the CDOproduct.We apply the Monte Carlo simulation to calculate the pricing of CDOand the expected default losses.Moreover,we compare the diferent copula to CDOpricing and propose the issues to research further.