The problem of numerically pricing credit default index swaptions on a large number of names is considered. We place ourselves in a stochastic intensity framework, where Ornstein-Uhlenbeck-type correlated processes are used to model both firms' distance to default and a macroeconomic state variable. Here the default of the firms' follows the reduced-form approach and the (random) intensity of the default depends on the behavior of the diffusion processes. We propose here a numerical method based on both a Monte Carlo and a deterministic approach for solving PDEs by finite differences. Numerical tests demonstrate the efficiency and the robustness of the proposed procedure. © Springer-Verlag 2006.

Bally, V., Caramellino, L., Zanette, A. (2006). A mixed PDE-Monte Carlo approach for pricing credit default index swaptions. DECISIONS IN ECONOMICS AND FINANCE, 29(2), 121-137 [10.1007/s10203-006-0065-1].

A mixed PDE-Monte Carlo approach for pricing credit default index swaptions

CARAMELLINO, LUCIA;
2006-01-01

Abstract

The problem of numerically pricing credit default index swaptions on a large number of names is considered. We place ourselves in a stochastic intensity framework, where Ornstein-Uhlenbeck-type correlated processes are used to model both firms' distance to default and a macroeconomic state variable. Here the default of the firms' follows the reduced-form approach and the (random) intensity of the default depends on the behavior of the diffusion processes. We propose here a numerical method based on both a Monte Carlo and a deterministic approach for solving PDEs by finite differences. Numerical tests demonstrate the efficiency and the robustness of the proposed procedure. © Springer-Verlag 2006.
2006
Pubblicato
Rilevanza internazionale
Articolo
Sì, ma tipo non specificato
Settore MAT/06 - PROBABILITA' E STATISTICA MATEMATICA
English
Bally, V., Caramellino, L., Zanette, A. (2006). A mixed PDE-Monte Carlo approach for pricing credit default index swaptions. DECISIONS IN ECONOMICS AND FINANCE, 29(2), 121-137 [10.1007/s10203-006-0065-1].
Bally, V; Caramellino, L; Zanette, A
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/37479
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