A Benchmark Approach of Counterparty Credit Exposure of Bermudan Option under Lévy Process: The Monte Carlo-COS Method | Zendy

Yanbin Shen | Zendy; J.A.M. van der Weide | Zendy; Jasper Anderluh | Zendy

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A Benchmark Approach of Counterparty Credit Exposure of Bermudan Option under Lévy Process: The Monte Carlo-COS Method

Author(s) -

Yanbin Shen,

J.A.M. van der Weide,

Jasper Anderluh

Publication year - 2013

Publication title -

procedia computer science

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.334

H-Index - 76

ISSN - 1877-0509

DOI - 10.1016/j.procs.2013.05.282

Subject(s) - monte carlo method , computer science , benchmark (surveying) , credit valuation adjustment , credit risk , computation , counterparty , process (computing) , reliability (semiconductor) , mathematical optimization , algorithm , mathematics , statistics , actuarial science , physics , economics , geodesy , credit reference , operating system , geography , power (physics) , quantum mechanics

An advanced method, which we call Monte Carlo-COS method, is proposed for computing the counterparty credit exposure profile of Bermudan options under Lévy process. The different exposure profiles and exercise intensity under different mea- sures, P and Q, are discussed. Since the COS method [1] delivers accurate Bermudan prices, and no change of measure [2] needed to get the P-probability distribution, the exposure profile produced by the Monte Carlo-COS algorithm can be used as a benchmark result, E.g., to analyse the reliability of the popular American Monte Carlo method [3], [4] and [5]. The efficient calculation of expected exposure (EE) [6] can be further applied to the computation of credit value adjustment (CVA) [6]

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