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Efficient hybrid methods for portfolio credit derivatives

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  • H. Zheng

Abstract

In this paper we discuss the computation of basket credit default swaps and collateralized debt obligation squared transactions. We suggest two hybrid algorithms for these two portfolio credit derivatives. The method combines the analytic approximation to the loss distribution of conditionally independent heterogeneous portfolios with the Monte Carlo simulation. The efficiency and accuracy of the algorithms are illustrated with examples.

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  • H. Zheng, 2006. "Efficient hybrid methods for portfolio credit derivatives," Quantitative Finance, Taylor & Francis Journals, vol. 6(4), pages 349-357.
    • Handle: RePEc:taf:quantf:v:6:y:2006:i:4:p:349-357
    DOI: 10.1080/14697680600696312
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    References listed on IDEAS

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    1. Frey, Rudiger & McNeil, Alexander J., 2002. "VaR and expected shortfall in portfolios of dependent credit risks: Conceptual and practical insights," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1317-1334, July.
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    Cited by:

    1. Nneka Umeorah & Phillip Mashele & Matthias Ehrhardt, 2021. "Pricing basket default swaps using quasi-analytic techniques," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 44(1), pages 241-267, June.

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