Computational aspects of integrated market and credit portfolio models (Q2460076)

In this paper it is analyzed whether a Fourier-based approach can be an efficient tool for calculating risk measures in the context of a credit portfolio model with integrated market risk factors. For this purpose, this technique is applied to a version of the well-known credit portfolio model CreditMetrics, extended by correlated interest rate and credit spread risk. While Fourier based methods are reported to be superior to full Monte Carlo simulations for default mode models, this result cannot be confirmed for the integrated market and credit portfolio model used in the paper. Combining full Monte Carlo simulation with importance sampling technique the author shows that this yields better results, even for the integrated market and portfolio model.