Credit Monte Carlo

Overview

One of the challenges of modeling to compute the statisitcs (mean, standard deviation, value at riks) of portfolio. Even if the assets within the portfolio have a well understood model, it may be hard to analytically compute the statisitcs of the portfolio. One of the ways to compute these statistics (at least approximately) is to use Monte Carlo Simulations.

Topics

• Simulating a Single Default - the first step to simulating a portfolio, is to simulate a single asset
• Simulating a Portfolio - simulating a portfolio is more difficult than just adding the results of simulating the assets in the portfolio. In particular, there are dependencies (correlations) between assets that need to be accounted for.