Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5077140 | Insurance: Mathematics and Economics | 2011 | 9 Pages |
Abstract
We introduce a new importance sampling method for pricing basket default swaps employing exchangeable Archimedean copulas and nested Gumbel copulas. We establish more realistic dependence structures than existing copula models for credit risks in the underlying portfolio, and propose an appropriate density for importance sampling by analyzing multivariate Archimedean copulas. To justify efficiency and accuracy of the proposed algorithms, we present numerical examples and compare them with the crude Monte Carlo simulation, and finally show that our proposed estimators produce considerably smaller variances.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Geon Ho Choe, Hyun Jin Jang,