IDEAS home Printed from https://ideas.repec.org/a/rsk/journ0/2160516.html
   My bibliography  Save this article

Valuation of mortgage-backed securities using Brownian bridges to reduce effective dimension

Author

Listed:
  • Russel E. Caflisch, William Morokoff, Art Owen

Abstract

ABSTRACT The quasi-Monte Carlo method for financial valuation and other integration problems has error bounds of size O((log N)k N-1), or even O((log N)k N-3/2), which suggests significantly better performance than the error size O(N-1/2) for standard Monte Carlo. But in high-dimensional problems, this benefit might not appear at feasible sample sizes. Substantial improvements from quasi-Monte Carlo integration have, however, been reported for problems such as the valuation of mortgage-backed securities, in dimensions as high as 360. The authors believe that this is due to a lower effective dimension of the integrand in those cases. This paper defines the effective dimension and shows in examples how the effective dimension may be reduced by using a Brownian bridge representation.

Suggested Citation

Handle: RePEc:rsk:journ0:2160516
as

Download full text from publisher

File URL: https://www.risk.net/system/files/import/protected/digital_assets/4393/v1n1a3b.pdf
Download Restriction: no
---><---

More about this item

Statistics

Access and download statistics

Corrections

All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsk:journ0:2160516. See general information about how to correct material in RePEc.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

We have no bibliographic references for this item. You can help adding them by using this form .

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Paine (email available below). General contact details of provider: https://www.risk.net/journal-of-computational-finance .

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.