Adaptive Importance Sampling for simulating copula-based distributions

被引:8
作者
Bee, Marco [1 ]
机构
[1] Univ Trento, Dept Econ, I-38100 Trento, Italy
关键词
Adaptive Importance Sampling; Copula; Cross-entropy; Finite mixture;
D O I
10.1016/j.insmatheco.2010.11.004
中图分类号
F [经济];
学科分类号
02 ;
摘要
In this paper, we propose a generalization of importance sampling, called Adaptive Importance Sampling, to approximate simulation of copula-based distributions. Unlike existing methods for copula simulation that have appeared in the literature, this algorithm is broad enough to be used for any absolutely continuous copula. We provide details of the algorithm including rules for stopping the iterative process and consequently assess its performance using extensive Monte Carlo experiments. To assist in its extension to several dimensions, we discuss procedures for identifying the crucial parameters in order to achieve desirable results especially as the size of the dimension increases. Finally, for practical illustration, we demonstrate the use of the algorithm to price First-to-Default credit swap, an important credit derivative instrument in the financial market. The method works exquisitely well even for large dimensions making it a valuable tool for simulating from many different classes of copulas including those which have been difficult to sample from using traditional techniques. (C) 2010 Elsevier B.V. All rights reserved.
引用
收藏
页码:237 / 245
页数:9
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