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| Copula from the Limit of a Multivariate Binary Model by Dennis Wong of Bank of America Corporation December 11, 2000 Introduction: In modelling an arrival of credit event, exponential arrival time is always assumed in the industry. However, there are many different ways in constructing joint credit event time via copula technique Li (2000) and there is no general guideline in selecting an appropriate one. In this article, we will show the multivariate exponential copula (see Marshall & Olkin (1967) and Duffie & Singleton (1998)) is the natural choice from the limiting viewpoint of a multivariate binary model. We will also see how the KMV parameters can be used to calibrate the model. In this exposition, we assume the reader is familiar with the limiting behavior from the multi-step binary model to the exponential time model. Download paper (154K PDF) 10 pages
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