International Conference on Computational Science , ICCS 2013 A benchmark approach of counterparty credit exposure of Bermudan option under Lévy Process : the Monte Carlo-COS Method

An advanced method, which we call Monte Carlo-COS method, is proposed for computing the counterparty credit exposure profile of Bermudan options under Levy process. The different exposure profiles and exercise intensity under different mea- sures, P and Q, are discussed. Since the COS method [1] delivers accurate Bermudan prices, and no change of measure [2] needed to get the P-probability distribution, the exposure profile produced by the Monte Carlo-COS algorithm can be used as a benchmark result, E.g., to analyse the reliability of the popular American Monte Carlo method [3], [4] and [5]. The efficient calculation of expected exposure (EE) [6] can be further applied to the computation of credit value adjustment (CVA) [6].

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