Interaction particle systems for the computation of rare credit portfolio losses
The authors follow the interacting particle system (IPS) approach and adapt it to the computation of loss probabilities for large credit portfolios. The interest to this problem is motivated by the uncontrolled growth of the market of collaterized debt obligations. The authors give an overview of Feynman-Kac measures on genealogical path spaces and the associated IPS interpretation. The loss process model for large credit portfolios is a discretized version of the standard first passage model of the structural approach. An algorithm for the solution is provided and its implementation is described in detail in the case of this stochastic volatility first passage structural model. Numerical results are obtained and discussed. The efficiency of the method is demonstrated in situations where importance sampling is impossible or numerically instable.
scientific article; zbMATH DE number 5697478
scientific article