We present an arbitrage-free valuation framework for the counterparty exposure of credit derivatives portfolios based on a Clayton dynamical default dependency approach. The method is able to capture consistently the effects of credit spread volatility and credit correlations. By introducing...

We show how Adjoint Algorithmic Differentiation can be combined with the so-called Pathwise Derivative and Likelihood Ratio Method to construct efficient Monte Carlo estimators of second order price sensitivities of derivative portfolios. We demonstrate with a numerical example how the proposed...

Using the path-integral formalism we develop an accurate and easy-to-compute semi-analytical approximation to transition probabilities and Arrow-Debreu densities for arbitrary diffusions. We illustrate the accuracy of the method by presenting results for the Black-Karasinski model for which the...

We show how Algorithmic Differentiation can be used to implement efficiently the Pathwise Derivative method for the calculation of option sensitivities with Monte Carlo. The main practical difficulty of the Pathwise Derivative method is that it requires the differentiation of the payout...

Adjoint Algorithmic Differentiation is one of the principal innovations in risk management of the recent times. In this paper we show how this technique can be used to compute real time risk for credit products

In this paper we propose a novel, analytically tractable, one-factor stochastic model for the dynamics of credit default swap (CDS) spreads and their returns, which we refer to as the spread-return mean-reverting (SRMR) model. The SRMR model can be seen as a hybrid of the Black-Karasinski model...