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2007

Approximations and control variates for pricing portfolio credit derivatives

4 years 21 days ago
Approximations and control variates for pricing portfolio credit derivatives
Portfolio credit derivatives that depend on default correlation are increasingly widespread in the credit market. Valuing such products often entails Monte Carlo simulation. However, for large portfolios, plain Monte Carlo simulation can be slow. In this paper, we develop approximation methods for pricing collateralized debt obligation (CDO) tranches in the widely used factor copula approach. We also discuss using the approximations as control variates to improve the precision of Monte Carlo estimates. These approximation methods and control variate techniques could be applied to pricing other portfolio credit derivatives as well.
Zhiyong Chen, Paul Glasserman
Added 02 Oct 2010
Updated 02 Oct 2010
Type Conference
Year 2007
Where WSC
Authors Zhiyong Chen, Paul Glasserman
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