Universität zu Köln

Schroeter, A. and Heider, P. (2013). Numerical methods to quantify the model risk of basket default swaps. J. Comput. Appl. Math., 251. S. 117 - 133. AMSTERDAM: ELSEVIER. ISSN 1879-1778

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Abstract

The valuation of basket default swaps depends crucially on the joint default probability of the underlying assets in the basket. It is known that this probability can be modeled by means of a copula function which links the marginal default probabilities to a joint probability. The valuation bears risk due to the uncertainty of the copula, the relation of the assets to each other and the marginal distributions which we call together the model risk. To value basket default swaps and to compute model risk parameters we present an efficient numerical approach based on importance sampling and applicable to different classes of copula models. Our numerical findings show that the choice of the underlying copula model influences strongly the risk profile of the basket and should be tailored advisedly. (C) 2013 Elsevier B.V. All rights reserved.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Schroeter, A. UNSPECIFIED UNSPECIFIED UNSPECIFIED Heider, P. UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-474048
DOI:	10.1016/j.cam.2013.03.042
Journal or Publication Title:	J. Comput. Appl. Math.
Volume:	251
Page Range:	S. 117 - 133
Date:	2013
Publisher:	ELSEVIER
Place of Publication:	AMSTERDAM
ISSN:	1879-1778
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language Mathematics, Applied Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/47404