Interacting Particle Systems for the Computation of CDO Tranche Spreads with Rare Defaults
نویسندگان
چکیده
We propose an Interacting Particle System method to accurately calculate the distribution of the losses in a highly dimensional portfolio by using a selection and mutation algorithm. We demonstrate the efficiency of this method for computing rare default probabilities on a toy model for which we have explicit formulas. This method has the advantage of accurately computing small probabilities without requiring the user to compute a change of measure as in the Importance Sampling method. This method will be useful for computing the senior tranche spreads in Collateralized Debt Obligations (CDOs).
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