We explore the class of second-order weak approximation schemes (cubature methods) for the numerical simulation of joint default probabilities in credit portfolios where the firm's asset value processes are assumed to follow the multivariate Heston stochastic volatility model. Correlation...

In this paper, we determine the lowest cost strategy for a given payoff in Lévy markets where the pricing is based on the Esscher martingale measure. In particular, we consider Lévy models where prices are driven by a normal inverse Gaussian (NIG)- or a variance Gamma (VG)-process. Explicit...

In 2005 the Internal Ratings Based (IRB) approach of `Basel II' was enhanced by a `treatment of double default effects' to account for credit risk mitigation techniques such as ordinary guarantees or credit derivatives. This paper reveals several severe problems of this approach and presents a...