Abstract
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 remains explicitly unsolved, convolution-based transform and Gil-Pelaez integral transform techniques are applied to implement the generator of default probabilities. The main conclusion of the study is that in some cases Gaussian copula is inappropriate model for CDO pricing.
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