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High-dimensional problems frequently arise in the pricing of derivative securities – for example, in pricing options on multiple underlying assets and in pricing term structure derivatives. American versions of these options, ie, where the owner has the right to exercise early, are particularly challenging to price. We introduce a stochastic mesh method for… (More)

Simulation has proved to be a valuable tool for estimating security prices for which simple closed form solutions do not exist. In this paper we present two direct methods, a pathwise method and a likelihood ratio method, for estimating derivatives of security prices using simulation. With the direct methods, the information from a single simulation can be… (More)

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 obligors and because risk management is particularly concerned… (More)

The payoff of a barrier option depends on whether or not a specified asset price, index, or rate reaches a specified level during the life of the option. Most models for pricing barrier options assume continuous monitoring of the barrier; under this assumption, the option can often be priced in closed form. Many (if not most) real contracts with barrier… (More)

- Darius Palia, Jason Abrevaya, Charlie Calomiris, Judy Chevalier, Paul Glasserman, Larry Glosten +16 others
- 2001

Much of the empirical literature that has examined the functional relationship between firm value and managerial ownership levels assumes that managerial ownership levels are exogenous and are the only component of managerial compensation related to firm performance. This assumption is contrary to the theoretical and empirical literature wherein managerial… (More)

- Jessica A Wachter, Robert Barro, John Campbell, Mikhail Chernov, Gregory Duffee, Xavier Gabaix +10 others
- 2013

Why is the equity premium so high, and why are stocks so volatile? Why are stock returns in excess of government bill rates predictable? This paper proposes an answer to these questions based on a time-varying probability of a consumption disaster. In the model, aggregate consumption follows a normal distribution with low volatility most of the time, but… (More)

- Paul Glasserman
- 2005

We consider the problem of decomposing the credit risk in a portfolio into a sum of risk contributions associated with individual obligors or transactions. For some standard measures of risk – including value-at-risk and expected shortfall – the total risk can be usefully decomposed into a sum of marginal risk contributions from individual obligors. Each… (More)

We analyze the performance of an importance sampling estimator for a rare-event probability in tandem Jackson networks. The rare event we consider corresponds to the network population reaching <italic>K</italic> before returning to ø, starting from ø, with <italic>K</italic> large. The estimator we study is based on interchanging the arrival rate… (More)

This paper presents an adjoint method to accelerate the calculation of Greeks by Monte Carlo simulation. The method calculates price sensitivities along each path; but in contrast to a forward pathwise calculation, it works backward recursively using adjoint variables. Along each path, the forward and adjoint implementations produce the same values, but the… (More)