Report title: Pricing Basket Default Swap with Conditional Monte Carlo in t-copula Model

Reporter: Yang Deng(Nanjing University of Science and Technology, Assistant Professor)

Time: 2016.10.12 Wed PM 16:00-17:30

Address: Lingnan Wang Daohan meeting room

Language: Chinese & English

Abstract:

A basket default swap is a derivative security tied to an underlying credit portfolio subjecting to various credit risks. The main challenge in valuing a BDS is to model the joint default times of all underlying assets’ efficiently. This study proposes a new algorithm to address this problem and price the BDS based on the conditional Monte Carlo method and the t-copula model. Several numerical experiments are conducted to evaluate the efficiency and the stability of the proposed conditional Monte Carlo algorithm. Results show that, compared with the famous Joshi-Kainth algorithm and the modified Joshi-Kainth algorithm, the proposed algorithm in this paper is more stable, offers substantial variance reduction and outperforms the plain Monte Carlo algorithm as well.

 

Reporter's details:

Yang Deng is an assistant professor in Finance in Nanjing University of Science and Technology. She has received her doctoral degree in Management from Huazhong University of Science and Technology, after one-year studying in Department of Land Economy in Cambridge University. Her primary research interests focus on pricing financial derivatives and financial risk management.