Modeling the term structure of CDO tranches

We propose a model that uses copula functions to represent beth cross-section and temporal dependence of losses in basket credit derivatives. The model uses: i) a sequence of copula functions to represent the joint distribution of losses in each period; ii) a sequence of bivariate copula functions to describe the dependence structure between the losses in each period and the cumulated losses at the beginning of it. Based in this information, we propose an algorithm to propagate losses, and to jointly recover the values of different tranches for the same maturity and those of the same tranche for different maturities.