We show that structural changes in stochastic volatility models induce spurious persistence. Other than in GARCH-type models, implied persistence does not tend to unity with given size of the structural change and increasing sample size.

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...