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Risk 25: Cutting edge classics
In October 2001, two prescient articles drew attention to the Gaussian copula model – that would play such a crucial role in the crisis to come – and anticipated the methods regulators are now exploring to capitalise market liquidity risk
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The limitations of the Gaussian copula came to widespread attention in 2007 and 2008 as banks suffered unprecedented losses on portfolios of structured credit – but readers of Risk had been warned of the model’s blind spot in October 2001, as shown in the first of two classic technical articles from that month’s issue, republished here. In Copulas and credit models, Rüdiger Frey, a professor of finance and optimisation at the University of Leipzig, Alex McNeil, a professor of finance at Heriot
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