Modeling dependency for credit risk. Gregory Emiel (IMPA)
In this presentation we briefly review the modeling of dependency in credit risk portfolios for measuring portfolio risk and for pricing credit derivatives. We will focus on the standard one-factor Gaussian copula model. If we attempt to imply out the market correlation using a simple Gaussian copula model fitted to observed market tranche spreads, correlation smiles will be reported. We will investigate possible origins of this phenomenon.