Credit Portfolio Simulation Using Correlated Binomial Lattices

• Main Authors: Tsung-Kai Huang, 黃琮凱
• Other Authors: 呂育道
• Format: Others
• Language: en_US
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/69496035607078048152

碩士 === 國立臺灣大學 === 財務金融學研究所 === 97 === We revisit the models developed in Das and Sundaram (2004) and Bandreddi, et al. (2007). Bandreddi, et al. (2007) use a simplified version of the model developed by Das and Sundaram for correlated default simulation. We find that in their setting, problematic probabilities may arise which may cause biased results for the purpose of default simulation and the pricing of derivative products. We suggest an alternative model — the D-CEV model, as an alternative to address this problem. The new model is an extension of a popular binomial model and is easy to implement. We further explore the natural characteristics of our method with several numerical experiments. Our proposed model is found to resolve the unpleasant flaws in the model of Bandreddi, et al. (2007) while preserving its desirable properties. We also show how this framework accounts for several empirical features.