Tested out using gaussian copula approach: (Modelling Default Correlations - With Counterparty Default Risk - Table 4)Y = payoffC = paymentsT = life of CDSPHI= risk neutral probability of NO default by counterparty or reference entity during life of swaptheta(t) = probability of default by reference entity at tpi(t) = probability of default by counterparty at tv(t) = discounting factorMethod 1:For each run:1) Simulate the times of default for the reference entity and counterparty using copula approach2) If no default by reference entity and counterparty during life of swap: Y=0, C = u(T)*PHI3) If reference entity defaults first at t, Y = (1-R-A(t)*R)*theta(t)*v(t) , C = theta(t)*(u(t) + e(t))4) If counterparty defaults first at t , Y = 0, C = pi(t)*u(t)Method 2:For each run:1) Simulate the times of default for the reference entity and counterparty2) If no default by reference entity and counterparty during life of swap: Y=0, C = u(T)3) If reference entity defaults first at t, Y = (1-R-A(t)*R)*v(t) , C = u(t) + e(t)4) If counterparty defaults first at t , Y = 0, C = u(t)For both methods: CDSSpread = Average value of Payoff (Y) / Average value of payments (C)My Answers: (BBB vs BBB - defaultcorr = 0.2)1) Method 1 (Inclusion of default probabilites in the calculation) : CDSspread approximately around 0.00062) Method 2 (EXCLUSION of default probabilites in the calculation) : CDSspread approximately around 0.01456Judging from my two methods, is there something wrong with the methodology? I can't seem to obtain the correct answers as stated in Table 4 in 'HW's Modelling Default Correlations"Doubts:1) Should I include the default probabilites in the calculation of payments and payoff to obtain the expected values? (Method 1) 2) How to calculate PHI PHI = risk neutral probability of NO default by counterparty or reference entity during life of swap = 1 - Joint probability of default by both parties?????Anyone who has tried out via the Copula Approach and obtained the correct values to Table 4 OR BASKET CREDIT DEFAULT SWAPS (Table 6), pls kindly advise what's wrong above...preferably give me some hints or if possible send me a copy of the correct methodology/values.Thanks!!!!!!!

in first method, you multiply payments by default probabilities, but you know if entity has defaulted or not. You should PV the payments without modifying them with def probs

I am also confused about how the default barrier is calculated. For the first period, it seems to be solved by a inverse normal cumulative function. How about the next period?Thanks...