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Optimization Problems in the Simulation of Multifactor Portfolio Credit Risk

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Computational Science and Its Applications - ICCSA 2006 (ICCSA 2006)

Part of the book series: Lecture Notes in Computer Science ((LNTCS,volume 3982))

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Abstract

We consider some optimization problems arising in an efficient simulation method for the measurement of the tail of portfolio credit risk. When we apply an importance sampling (IS) technique, it is necessary to characterize the important regions. In this paper, we consider the computation of directions for the IS, which becomes hard in multifactor case. We show this problem is NP-hard. To overcome this difficulty, we transform the original problem to subset sum and quadratic optimization problems. We support numerically that these re-formulation is computationally tractable.

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Author information

Authors and Affiliations

  1. Columbia University, New York, NY, USA

    Wanmo Kang

  2. Hankuk University of Foreign Studies, Yongin, Korea

    Kyungsik Lee

Authors
  1. Wanmo Kang
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  2. Kyungsik Lee
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Editor information

Editors and Affiliations

  1. Department of Computer Science, University of Calgary, 2500 University Drive N.W., T2N 1N4, Calgary, AB, Canada

    Marina Gavrilova

  2. Department of Mathematics and Computer Science, University of Perugia, via Vanvitelli, 1, I-06123, Perugia, Italy

    Osvaldo Gervasi

  3. William Norris Professor, Head of the Computer Science and Engineering Department, University of Minnesota, USA

    Vipin Kumar

  4. OptimaNumerics Ltd., Cathedral House, 23-31 Waring Street, BT1 2DX, Belfast, UK

    C. J. Kenneth Tan

  5. Clayton School of IT, Monash University, 3800, Clayton, Australia

    David Taniar

  6. Department of Chemistry, University of Perugia, Via Elce di Sotto, 8, I-06123, Perugia, Italy

    Antonio Laganá

  7. School of Computing, Soongsil University, Seoul, Korea

    Youngsong Mun

  8. School of Information and Communication Engineering, Sungkyunkwan University, Korea

    Hyunseung Choo

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© 2006 Springer-Verlag Berlin Heidelberg

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Kang, W., Lee, K. (2006). Optimization Problems in the Simulation of Multifactor Portfolio Credit Risk. In: Gavrilova, M., et al. Computational Science and Its Applications - ICCSA 2006. ICCSA 2006. Lecture Notes in Computer Science, vol 3982. Springer, Berlin, Heidelberg. https://doi.org/10.1007/11751595_82

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  • DOI: https://doi.org/10.1007/11751595_82

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-540-34075-1

  • Online ISBN: 978-3-540-34076-8

  • eBook Packages: Computer ScienceComputer Science (R0)

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