The Skewed t Distribution for Portfolio Credit Risk
by Wenbo Hu of Bell Trading, and
Abstract: Portfolio credit derivatives, such as basket credit default swaps (basket CDS), require for their pricing an estimation of the dependence structure of defaults, which is known to exhibit tail dependence as reflected in observed default contagion. A popular model with this property is the (Student's) t copula; unfortunately there is no fast method to calibrate the degree of freedom parameter.
Keywords: Portfolio Credit Risk, Basket Credit Default Swaps, Skewed t Distribution, t Distribution, t Copula.
Published in: Advances in Econometrics, Vol. 22, (2008), pp. 55-83.