Isaac Newton Institute for Mathematical Sciences

City Event "Credit"

The Gaussian Copula Model and beyond

26th February 2005

Author: Jon Gregory (BNP Paribas)

Abstract

The Gaussian copula model has become an industry standard in the pricing of multi-name credit derivative products. Whilst the model has highly questionable dynamics, it has given the theoretical foundations for a huge growth in credit correlation products over the last few years. We describe the current situation regarding the use of this model and highlight some of the challenges currently faced by practitioners such as parametrisation, efficient calculation of greeks and modelling of the correlation skew.