Values of tranche spreads of collateralized debt obligations (CDOs) are driven by the joint default performance of the assets in the collateral pool. The dependence between the names in the portfolio mainly depends on current economic conditions. Therefore, a correlation implied from tranches...

Values of tranche spreads of collateralized debt obligations (CDOs) are driven by the joint default performance of the assets in the collateral pool. The dependence between the names in the portfolio mainly depends on current economic conditions. Therefore, a correlation implied from tranches...

A flexible way to incorporate heterogeneous tail-dependency into dependency modeling based on a recently proposed modification of the t-copula is presented and applied to a realistic credit portfolio. The heterogeneous t-copula is assumed for the underlying multivariate factor model and it is...