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They introduced copula for pricing of CDO,and discussed how different CDO spreads were with using different copula for pricing. I would like to reproduce their result (especially,P23-Table7)

The condition of calculation is following that

number of debt（NUM.REFDEBT）:=100

maturity(MATURITY):=5 year

recovery rate(RECOVERY.RATE):=40%（constant value）

probability of default (DEFAULT.PROBABILITY):=5％（in 5 years）

parameter of nomal copula ρ:=0.15

parameter of clayton copula α:=0.21

They apporoximated their valuation formula for easy calculation(equation (27))

(They assumed that CDO spread were paid as discounted bond at the begging.)

I simulated valuation of CDO with their method.

The result is following that

copula/tranche

Equity

mezzanine

senior

super senior

normal

1,145.42

62.49

0.52

0.000

t(20)

1,055.28

86.07

2.18

0.004

t(6)

896.74

126.44

8.56

0.044

t(3)

733.31

165.90

23.56

0.191

clayton

857.64

135.73

12.83

0.084

This table reproduce their result(P23-Table7).

And, In senior or super senior,you can understand that the CDO spread which is evaluated by normal copula is lower than the others. It means that normal copula is inadequate in financial crisis.

I show you my programming code（by R language). If you copy and run my source code, you can duplicate my result easily. Before you run, please install “copula”package.