Numerical methods for basket credit derivatives models
C. Reisinger (University of Oxford, UK)
The simulation of multi-name credit derivatives raises significant challenges, among others from the perspective of dependence modelling, calibration, and computational complexity. Structural models are based on the evolution of firm values, often modelled by market and idiosyncratic factors, to create a rich correlation structure. A major computational hurdle is the inherent high-dimensionality of the problem. We will give illustrations for small n-th-to-default baskets, and then focus on the numerical solution of an SPDE model for basket credit derivatives in the limiting case of a large (infinite) number of constituents, by means of importance sampling techniques.