Elliptical and Archimedean copula models: an application to the price estimation of portfolio credit derivatives

Umeorah, Nneka ORCID: https://orcid.org/0000-0002-0307-5011, Mashele, Phillip and Ehrhardt, Matthias 2020. Elliptical and Archimedean copula models: an application to the price estimation of portfolio credit derivatives. Journal of Credit Risk 17 (1) , pp. 1-29. 10.21314/JCR.2020.263

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Abstract

This paper explores the impact of elliptical and Archimedean copula models on the valuation of basket default swaps. We employ Monte Carlo simulation, in connection with the copula models, to estimate the default times and to calculate the swap payment legs and the cumulative swap premium. The numerical experiments reveal some sensitivity analysis on the impact of swap parameters on the fair prices of the nth-to-default swaps. Finally, using the results presented, an appropriate choice of copula model can be made based on the computation time of the valuation process, and such a choice hugely affects the quantitative risk analysis of the portfolio.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Mathematics
Publisher:	Incisive Media
ISSN:	1744-6619
Last Modified:	10 Nov 2022 10:37
URI:	https://orca.cardiff.ac.uk/id/eprint/147603

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