Invariance properties in the dynamic gaussian copula model *

2017/02/10 by Stéphane Crépey, Crépey, Stéphane, Shiqi Song +1
Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Computational Finance (q-fin.CP) #Credit Risk and Financial Regulations #FOS: Economics and business #Insurance and Financial Risk Management

paper · pdf · doi:10.48550/arxiv.1702.03232

openalex publication_date 2017/02/10 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

We prove that the default times (or any of their minima) in the dynamic Gaussian copula model of Crépey, Jeanblanc, and Wu (2013) are invariance times in the sense of Crépey and Song (2017), with related invariance probability measures different from the pricing measure. This reflects a departure from the immersion property, whereby the default intensities of the surviving names and therefore the value of credit protection spike at default times. These properties are in line with the wrong-way risk feature of counterparty risk embedded in credit derivatives, i.e. the adverse dependence between the default risk of a counterparty and an underlying credit derivative exposure.

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