Synthetic Collateralized Debt Obligations (CDOs) were among the driving forces of the rapid growth of the market for credit derivatives in recent years. Possibly the most popular model beside the Gaussian copula for pricing CDO tranches is the Random-Factor-Loading-Model of Andersen and Sidenius...

We extend the well established link between structural change and estimated persistence from GARCH to stochastic volatility (SV) models. Whenever structural changes in some model parameters increase the empirical auto correlations of the squares of the underlying time series, the persistence in...