Simulating point processes by intensity projection
Proceedings of the 40th Conference on Winter Simulation
Connecting the top-down to the bottom-up: pricing CDO under a conditional survival (CS) model
Proceedings of the 40th Conference on Winter Simulation
Time-Changed Birth Processes and Multiname Credit Derivatives
Operations Research
Rare event simulation for a generalized Hawkes process
Winter Simulation Conference
Monte Carlo Algorithms for Default Timing Problems
Management Science
Valuation of collateralized debt obligations in a multivariate subordinator model
Proceedings of the Winter Simulation Conference
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A credit derivative is a path dependent contingent claim on the aggregate loss in a portfolio of credit sensitive securities. We estimate the value of a credit derivative by Monte Carlo simulation of the affine point process that models the loss. We consider two algorithms that exploit the direct specification of the loss process in terms of an intensity. One algorithm is based on the simulation of intensity paths. Here discretization introduces bias into the results. The other algorithm facilitates exact simulation of default times and generates an unbiased estimator of the derivative price. We implement the algorithms to value index and tranche swaps, and we calibrate the loss process to quotes on the CDX North America High Yield index.