Dual Quantization for random walks with application to credit derivatives

Gilles Pag\`es and Benedikt Wilbertz
Additional contact information
Gilles Pag\`es: PMA
Benedikt Wilbertz: PMA

Papers from arXiv.org

Abstract: We propose a new Quantization algorithm for the approximation of inhomogeneous random walks, which are the key terms for the valuation of CDO-tranches in latent factor models. This approach is based on a dual quantization operator which posses an intrinsic stationarity and therefore automatically leads to a second order error bound for the weak approximation. We illustrate the numerical performance of our methods in case of the approximation of the conditional tranche function of synthetic CDO products and draw comparisons to the approximations achieved by the saddlepoint method and Stein's method.

Date: 2009-10
New Economics Papers: this item is included in nep-cmp
References: View complete reference list from CitEc
Citations:

Published in Journal of Computational Finance 16, 2 (2012) 33-60 ;

Downloads: (external link)
http://arxiv.org/pdf/0910.5655 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0910.5655

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().