Importance Sampling Enhanced with the COS Method for the Portfolio Risk Allocation

Fang Fang, Xiaoyu Shen and Qinling Wang

Papers from arXiv.org

Abstract: We introduce ISCOS, a cross-entropy importance-sampling calibration method for rare credit-portfolio losses. We derive Gaussian and Gaussian--inverse-Gamma proposals and analyse the propagation of finite-COS approximation errors to the fitted parameters. Numerical experiments for Gaussian and Student t-copula credit portfolios show the efficiency of this method.

Date: 2026-08
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