Estimating tranche spreads by loss process simulation
Proceedings of the 39th conference on Winter simulation: 40 years! The best is yet to come
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Point processes with stochastic intensities are ubiquitous in many application areas, including finance, insurance, reliability and queuing. They can be simulated from standard Poisson arrivals by time-scaling with the cumulative intensity, whose path is typically generated with a discretization method. However, discretization introduces bias into the simulation results. This paper proposes a method for the exact simulation of point processes with stochastic intensities. The method leads to unbiased estimators. It is illustrated for a point process whose intensity follows an affine jump-diffusion process.