We develop an efficient Monte Carlo method for the valuation of a financial contract with payoff dependent on discretely realized variance. We assume a general model in which asset returns are random shocks modulated by a stochastic volatility process. Realized variance is the sum of squared...

An important recent development in the pricing of interest rate derivatives is the emergence of models that incorporate lognormal volatilities for forward Libor or forward swap rates while keeping interest rates stable. These market models\/ have three attractive features: they preclude...

Monte Carlo simulation is widely used to measure the credit risk in portfolios of loans, corporate bonds, and other instruments subject to possible default. The accurate measurement of credit risk is often a rare-event simulation problem because default probabilities are low for highly rated...