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%T Correlation Smile Matching for CDO Tranches with α Stable Distributions and Fitted Archimedan Copulas %A Scherer, Wolfgang %A Prange, Dirk %J Quantitative Finance %N 4 %P 439-449 %V 9 %D 2009 %K Copulas; Correlation modelling; Credit derivatives; Credit models %= 2011-03-17T11:39:00Z %~ http://www.peerproject.eu/ %> https://nbn-resolving.org/urn:nbn:de:0168-ssoar-221341 %X As an extension of the standard Gaussian copula model to price CDO tranche swaps we present a generalization of a one-factor copula model based on stable distributions. For special parameter values these distributions coincide with Gaussian or Cauchy distributions, but changing the parameters allows a continuous deformation away from the Gaussian copula. All these factor copulas are embedded into a framework of stochastic correlations. We furthermore generalize the linear dependency in the usual factor approach to a more general Archimedean copula dependency between the individual trigger variable and the common latent factor. Our analysis is carried out on a non-homogeneous correlation structure of the underlying portfolio. CDO tranche market premia, even through the correlation crisis in May 2005, can be reproduced by certain models. From a numerical perspective all these models are simple since calculations can be reduced to one dimensional numerical integrals. %C GBR %G en %9 journal article %W GESIS - http://www.gesis.org %~ SSOAR - http://www.ssoar.info