Interacting Path Systems for Credit Risk
Interacting particle systems provide one of the most efficient ways to perform variance reduction in Monte Carlo approaches to rare events analysis. This chapter is meant as a general introduction to the theory with a particular emphasis toward applications to credit risk. We survey the main techniques and results, illustrate them with recent findings, and propose a new class of algorithms (referred to as interacting path systems) suited to the analysis of multiple defaults in credit portfolios.
Let us consider one of the simplest ...