Modeling Large Credit Risk Portfolios and Stochastic Correlation
Abstract: In the first part we study how to compute standard risk measures for credit portfolios with a large number of heterogeneous companies using Large Deviation approximation techniques. We consider random recoveries depending on the state of the economy and its impact in potential losses.
In the second part we propose some models for the pricing of multivariate derivatives under stochastic correlation and volatility. We provide approximate closed-form formulas for their prices, avoiding costly Monte Carlo simulation techniques.