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Rapid and accurate development of prices and Greeks for nth to default credit swaps in the Li model

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Author Info

  • Mark Joshi
  • Dherminder Kainth

Abstract

New techniques are introduced for pricing nth to default credit swaps in the Li model. We demonstrate the use of importance sampling to greatly increase the rate of convergence of Monte Carlo simulations for pricing. This technique is combined with the likelihood ratio and pathwise methods for computing the sensitivities of these products to changes in the hazard rates of the underlying obligors. In particular the extension of the pathwise method has wider significance in that it is shown that the method can be used even when the pay-off is discontinuous.

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File URL: http://www.tandfonline.com/doi/abs/10.1088/1469-7688/4/3/003
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 4 (2004)
Issue (Month): 3 ()
Pages: 266-275

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Handle: RePEc:taf:quantf:v:4:y:2004:i:3:p:266-275

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Cited by:
  1. Choe, Geon Ho & Jang, Hyun Jin, 2011. "Efficient algorithms for basket default swap pricing with multivariate Archimedean copulas," Insurance: Mathematics and Economics, Elsevier, vol. 48(2), pages 205-213, March.
  2. Grundke, Peter, 2009. "Importance sampling for integrated market and credit portfolio models," European Journal of Operational Research, Elsevier, vol. 194(1), pages 206-226, April.
  3. Fathi, Abid & Nader, Naifar, 2007. "Price Calibration of basket default swap: Evidence from Japanese market," MPRA Paper 6013, University Library of Munich, Germany.

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