Journal of Credit Risk
ISSN:
1744-6619 (print)
1755-9723 (online)
Editor-in-chief: Linda Allen and Jens Hilscher
Extensions to the Gaussian copula: random recovery and random factor loadings
Leif Andersen, Jakob Sidenius
Abstract
ABSTRACT
This paper presents two new models of portfolio default loss that extend the standard Gaussian copula model yet preserve tractability and computational efficiency. In one extension, we randomize recovery rates, explicitly allowing for the empirically well-established effect of inverse correlation between recovery rates and default frequencies.
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