<r>You will find an excellent paper on Dynamic Copula Processes:A new way of modelling CDO trancheshttp://<URL url="http://www.cerna.ensmp.fr/Documents/DTT-MA-DynamicCopula.pdfcheers"><LINK_TEXT text="www.cerna.ensmp.fr/Documents/DTT-MA-Dyn ... .pdfcheers">www.cerna.ensmp.fr/Documents/DTT-MA-Dynamic...

Thanks for the paper crazy horse, I have read only quickly. I found it well written and easy to understand.I will try to implement it!

I'm trying to find a paper on dynamic copula process. most of the paper I have read until recently, deal only with static copula which ar not in fact a process or some time garch that can not be used for practical pricing.

A Note of Option Pricing for Constant Elasticity of Variance ModelApproximating volatility diffusions with CEV-ARCH modelsClosed-form pricing of Benchmark Equity Default Swaps under the CEV assumption

<t>Hi,with larger information, we should expect to have lower volatility. Therefore, it seems to me that for the first minutes of the process, the process is inhomogeneous and the volatility dependent on time. a)Try first to estimate from the autocorrelation the memory of the process with time. b) i...

Try the link: GloriaMundi brings together tools for risk managers to increase their effectiveness and impact

Use log contract with a Short and a Long position with two different maturities " short term maturity (t) and long term maturity (T)" . Then calibrate the parameters to the forwart Variance starting at (t) with maturity (T-t).

It could be nice to use discrete to continus correction on the tree to price Barrier option, this will speed up the convergence!

Try this link:ABS Credit Migrations 2004

Anay type of copula: Gumbel, Frank, Clayton...Archimedian Copula with generator function such that :, where are uniform random numbers.Cheers.

I think that we are saying the same thing. Real replication or convexitity adjustment is nothing else than an approximation of the taylor expension. By the way, your P&L depend only on your hedging strategy.

Replication of a generic and smooth payoff function f is given by:The discrete version of this equation gives directly the weigth and the strikes for the plain vanilla options used for the hedge.

The convexity adjustment has nothing to do with replication function. It is in fact a second order taylor expension approximation. That's why you have the term. Replication of a power option is a little beat tricky. So you need to be carefull when using hedging strategy!!!Cheers

Convexity adjustment!