Risk 25: Cutting edge classics

Don’t say we didn’t warn you


The limitations of the Gaussian copula came to widespread attention in 2007 and 2008 as banks suffered unprecedented losses on portfolios of structured credit – but readers of Risk had been warned of the model’s blind spot in October 2001, as shown in the first of two classic technical articles from that month’s issue, republished here. In Copulas and credit models, Rüdiger Frey, a professor of finance and optimisation at the University of Leipzig, Alex McNeil