A Monte Carlo pricing engine for n to default credit swaps in the Li model

The aim of this work is the implementation of pricing engine for Nth to default credit swaps. The pricing model we consider is the ”Li model” [Li, 2000]; our implementation is based on the techniques described in [Joshi and Kainth, 2004]. The model described in [Li, 2000] uses Gaussian Copulae to model asset correlation. It is well-known that Gaussian Copulas do not model satisfactorily tail dependencies which can have a significant impact in the pricing of credit derivative. We consider using a T-copula as to better model tail dependencies and study their impact on the credit swaps prices.