CDO Tranche Sensitivities in the Gaussian Copula Model

by Chao Meng of Louisiana State University, and
Ambar N. Sengupta of Louisiana State University

September 2009

Abstract: We derive explicit formulas for CDO tranche sensitivity to parameter variations, and prove results concerning the qualitative behavior of such tranche sensitivities, for a homogeneous portfolio governed by the one-factor Gaussian copula. A Poisson-mixture model is also investigated in a similar
vein.

JEL Classification: G33.

AMS Classification: 60G35.

Keywords: Credit Derivatives, Gaussian Copula, CDS, CDO, Correlation.

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