The Gaussian Copula Model That Was Used to Price C

question 20

Multiple Choice

The Gaussian copula model that was used to price c ollateralized debt obligations (CDOs) and collateralized mortgage obligations (CMOs) was problematic in what way?

• A)There were some incorrect assumptions underlying the model, which caused significant mispricing of CDOs and CMOs.
• B)There were some incorrect assumptions underlying the model, rendering it useless in the face of many simultaneous defaults.
• C)The model was fairly accurate under almost all conditions, but was ignored when it was most needed.
• D)The model was slightly inaccurate and after many widespread applications, the effects of the inaccuracy were multiplied.

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Definitions:

Manic Episodes

Periods of abnormally elevated mood and high energy, often characteristic of bipolar disorder.

Depressive Episodes

Periods marked by profound sadness, lack of energy, and diminished interest in activities, characteristic of major depressive disorder.

Suicide Risk

The likelihood that an individual will attempt to take their own life, often assessed through various psychological and behavioral factors.

Bipolar Disorder

A mental health condition marked by extreme mood swings from high (mania) to low (depression) and vice versa.