In this paper we introduce a simple version of the “local-in-index” correlation model in which the correlation function does not depend on the index but on a synthetic index computed solely from the ...

We consider stochastic correlation models that account for the correlation smile in the pricing of synthetic CDO tranches. These can be viewed as tractable extensions of the one-factor Gaussian copula ...

As global financial markets become increasingly interconnected, accurately modelling correlations between assets is essential. Traditional models often assume static correlations, which fail to ...