Optimization problems in the simulation of multifactor portfolio credit risk

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We consider some optimization problems arising in an efficient simulation method for the measurement of the tail of portfolio credit risk. When we apply an importance sampling (IS) technique, it is necessary to characterize the important regions. In this paper, we consider the computation of directions for the IS, which becomes hard in multifactor case. We show this problem is NP-hard. To overcome this difficulty, we transform the original problem to subset sum and quadratic optimization problems. We support numerically that these reformulation is computationally tractable.
Publisher
SPRINGER-VERLAG BERLIN
Issue Date
2006
Language
English
Article Type
Article; Proceedings Paper
Citation

COMPUTATIONAL SCIENCE AND ITS APPLICATIONS - ICCSA 2006, PT 3 BOOK SERIES: LECTURE NOTES IN COMPUTER SCIENCE, v.3982, pp.777 - 784

ISSN
0302-9743
URI
http://hdl.handle.net/10203/251094
Appears in Collection
MA-Journal Papers(저널논문)
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