Sequential Importance Sampling and Resampling for Dynamic Portfolio Credit Risk
by Shaojie Deng of Microsoft,
March 4, 2011
Abstract: We provide a sequential Monte Carlo method for estimating rare-event probabilities in dynamic, intensity-based point process models of portfolio credit risk. The method is based on a change of measure and involves a resampling mechanism. We propose resampling weights that lead, under technical conditions, to a logarithmically efficient simulation estimator of the probability of large portfolio losses. A numerical analysis illustrates the features of the method, and contrasts it with other rare-event schemes recently developed for portfolio credit risk, including an interacting particle scheme and an importance sampling scheme.