Pricing Basket Default Swap with Spectral Decomposition

• Main Authors: Pei-kang Chen, 陳培康
• Other Authors: 黃振聰
• Format: Others
• Language: zh-TW
• Published: 2007
• Online Access: http://ndltd.ncl.edu.tw/handle/7ddsh5

碩士 === 國立中山大學 === 財務管理學系研究所 === 95 === Cholesky Decomposition is usually used to deal with the correlation problem among a financial product''s underlying assets. However, Cholesky Decomposition inherently suffers from the requirement that all eigenvalues must be positive. Therefore, Cholesky Decomposition can''t work very well when the number of the underlying assets is high. The report takes a diffrent approach called spectral Decomposition in attempt to solve the problem. But it turns out that although Spectral Decomposition can meet the requirement of all-positive eigenvalue, the decomposision error will be larger as the number of underlying asset getting larger. Thus, although Spectral Decomposition does offer some help, it works better when the number of underlying assets is not very large.