Modified Pricing Model for Synthetic Collateralized Debt Obligation (SCDO)

摘要

The original one factor Gaussian Copula model for pricing SCDO has some demerits, such as the correlation coefficient calculated under this model may be larger than 1. To make the model parameters more reasonable and capture the real world characteristics, a modified model is introduced by adding lag factors which affect the collateral quality in the asset pool. This new model has two big advantages: (1) It Guarantees the correlation coefficients stay between 0 and 1 in all kinds of market conditions. (2) It can help the investors find arbitrage opportunities.