Gauss and Poisson approximation: applications to CDO tranches pricing
Résumé
This article describes a new numerical method, based on Stein's method and zero bias transformation, to compute CDO tranche prices. We propose first order correction terms for both Gauss and Poisson approximations. We then combine the two approximations to price CDOs tranches in the conditionally independent framework using a realistic local correlation structure. Numerical tests show that the method provides robust results with a very low computational burden.
Domaines
Probabilités [math.PR]| Origine | Fichiers produits par l'(les) auteur(s) |
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