High dimensional Quasi Monte Carlo in Finance

69e0550389260c6ba11a8b087e642a10?s=47 Marco Bianchetti
May 12, 2016

High dimensional Quasi Monte Carlo in Finance

Monte Carlo simulation in finance has been traditionally focused on pricing derivatives. Actually nowadays market and counterparty risk measures, based on multi-dimensional multi-step Monte Carlo simulation, are very important tools for managing risk, both on the front office side (sensitivities, CVA) and on the risk management side (estimating risk and capital allocation). Furthermore, they are typically required for internal models and validated by regulators.
The daily production of prices and risk measures for large portfolios with multiple counterparties is a computationally intensive task, which requires a complex framework and an industrial approach. It is a typical high budget, high effort project in banks.
In this presentation we focus on the Monte Carlo simulation, showing that, despite some common wisdom, Quasi Monte Carlo techniques can be applied, under appropriate conditions, to successfully improve price and risk figures and to reduce the computational effort.
This work includes and extends our paper M. Bianchetti, S. Kucherenko and S. Scoleri, “Pricing and Risk Management with High-Dimensional Quasi Monte Carlo and Global Sensitivity Analysis”, Wilmott Journal, July 2015 (also available at http://ssrn.com/abstract=2592753).


Marco Bianchetti

May 12, 2016