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Application of Stochastic Mesh Method to Efficient Approximation of CVA

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  • Yusuke Morimoto

Abstract

In this paper, the author considers the numerical computation of CVA for large systems by Mote Carlo methods. He introduces two types of stochastic mesh methods for the computations of CVA. In the first method, stochastic mesh method is used to obtain the future value of the derivative contracts. In the second method, stochastic mesh method is used only to judge whether future value of the derivative contracts is positive or not. He discusses the rate of convergence to the real CVA value of these methods.

Suggested Citation

  • Yusuke Morimoto, 2015. "Application of Stochastic Mesh Method to Efficient Approximation of CVA," Papers 1510.04588, arXiv.org.
    • Handle: RePEc:arx:papers:1510.04588
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    1. Masaaki Fujii & Akihiko Takahashi, 2010. "Asymmetric and Imperfect Collateralization, Derivative Pricing, and CVA," CIRJE F-Series CIRJE-F-781, CIRJE, Faculty of Economics, University of Tokyo.
    2. Duffie, Darrell & Huang, Ming, 1996. "Swap Rates and Credit Quality," Journal of Finance, American Finance Association, vol. 51(3), pages 921-949, July.
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