We provide a sequential Monte Carlo method for estimating rare-event probabilities in dynamic, intensity-based point process models of portfolio credit risk. The method is based on a change of measure and involves a resampling mechanism. We propose resampling weights that lead, under technical...

We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm defaults at a stochastic intensity that is influenced by an idiosyncratic risk process, a...

Dynamic, intensity based point process models are widely used to measure and price the correlated default risk in portfolios of credit-sensitive assets such as loans and corporate bonds. Monte Carlo simulation is an important tool to perform computations in these models. This paper develops,...

This paper develops dynamic measures of the systemic risk of the financial sector as a whole. It defines systemic risk as the conditional probability of failure of a sufficiently large fraction of the total population of financial institutions. This definition recognizes that the cause of...

Jump-diffusion processes are ubiquitous in finance and economics. They arise as models of security, energy and commodity prices, exchange and interest rates, and default timing. This paper develops a method for the exact simulation of a skeleton, a hitting time and other functionals of a...

We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for developing a conditionally Gaussian approximation to the...

Risk management applications often require estimating the tail distribution of total default losses on a portfolio of credit-sensitive positions such as loans and corporate bonds. This paper develops, analyzes and tests an importance sampling estimator of large-loss probabilities. The estimator...

Correlated default risk plays a significant role in financial markets. Dynamic intensity-based models, in which a firm default is governed by a stochastic intensity process, are widely used to model correlated default risk. The computations in these models can be performed by Monte Carlo...