Using the Stein numerical method, introduced by El Karoui and Jiao and El Karoui et al., the paper compares, in terms of accuracy and efficiency, the pricing of the basket default swaps (NTDs and CDO tranches).
In the factor copula model framework, the paper compares the following copula functions: one-factor and three-factors Gaussian copula, Clayton copula, Marshall-Olkin copula, Double-t copula and Student copula. Stein numerical method is also compared with the Recursive method of Hull and White, probability generating function method (an exact Fourier transform like method) and the Monte Carlo method. |
