Consider a [0%, 5%] super senior tranche , and a index CDS spread of 400 bps for 5 years maturity assuming 0% recovery and 0% interest rates. Well be pricing this tranche using one factor gaussian copula.

a) What is the tranche expected loss ?

b) What is the effect of correlation for equity tranche expected loss and par CDS spread? use 1%, 10%, 20%, 30% gaussian copula correlation and compute the par spread and expected loss.

c) How do you hedge the super senior tranche with the index?