Pricing BDS Based on Distorted Copulas Functions

The appearance of new Copula functions-distorted Copula functions are attracted more and more attention. In this paper, by using Monte Carlo simulation, we find that the tail dependence of distorted Copula functions is better than that of normal Gaussian Copula functions. By using distorted copula functions to price BDS, we investigate the default risk of the BDS. The results show that the distorted Copula functions can be served as an effective tool for investigating BDS.