Counterparty Risk Valuation: A Marked Branching Diffusion Approach
The purpose of this paper is to design an algorithm for the computation of the counterparty risk which is competitive in regards of a brute force ''Monte-Carlo of Monte-Carlo" method (with nested simulations). This is achieved using marked branching diffusions describing a Galton-Watson random tree. Such an algorithm leads at the same time to a computation of the (bilateral) counterparty risk when we use the default-risky or counterparty-riskless option values as mark-to-market. Our method is illustrated by various numerical examples.
|Date of creation:||2012|
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- L. C. G. Rogers, 2002. "Monte Carlo valuation of American options," Mathematical Finance, Wiley Blackwell, vol. 12(3), pages 271-286.
- Fahim, Arash & Touzi, Nizar & Warin, Xavier, 2011. "A Probabilistic Numerical Method for Fully Nonlinear Parabolic PDEs," Economics Papers from University Paris Dauphine 123456789/5524, Paris Dauphine University.
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