Quant Congress: Gaussian copula "failing dramatically" in pricing CDOs

Peter Madigan
08 Jul 2008

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Speaking at the Quant Congress USA in New York, Jon Gregory, formerly global head of credit quantitative analytics at Barclays Capital in London, told delegates that the Gaussian copula “fails quite dramatically when applied in practical terms to the credit market” and does not legislate for the possibility of idiosyncratic or systemic defaults.

Focusing particularly on super senior tranches, Gregory illustrated that, under a Gaussian model, a super senior tranche of a CDO referencing 125

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