Nonlinear Monte Carlo schemes for counterparty risk on credit derivatives

Abstract : Two nonlinear Monte Carlo schemes, namely, the linear Monte Carlo expansion with randomization of Fujii and Takahashi (2012a,2012b) and the marked branching diffusion scheme of Henry-Labordère (2012), are compared in terms of applicability and numerical behavior regarding counterparty risk computations on credit derivatives. This is done in two dynamic copula models of portfolio credit risk: the dynamic Gaussian copula model and the model in which default dependence stems from joint defaults. For such high-dimensional and nonlinear pricing problems, more standard deterministic or simulation/regression schemes are ruled out by Bellman's " curse of dimensionality " and only purely forward Monte Carlo schemes can be used.
Document type :
Preprints, Working Papers, ...
Complete list of metadatas

Cited literature [16 references]  Display  Hide  Download

https://hal.archives-ouvertes.fr/hal-01764400
Contributor : Stéphane Crépey <>
Submitted on : Wednesday, April 11, 2018 - 8:58:05 PM
Last modification on : Friday, July 20, 2018 - 11:12:59 AM

File

crepey_nguyen-CORRECTED.pdf
Files produced by the author(s)

Identifiers

  • HAL Id : hal-01764400, version 1

Citation

Stéphane Crépey, Tuyet Nguyen. Nonlinear Monte Carlo schemes for counterparty risk on credit derivatives. 2018. ⟨hal-01764400⟩

Share

Metrics

Record views

75

Files downloads

165