The Mathematical Institute, University of Oxford, Eprints Archive

A Large Market Model with Stochastic Volatility and Application to Pricing Credit Derivatives

Borowski, Mateusz (2014) A Large Market Model with Stochastic Volatility and Application to Pricing Credit Derivatives. Masters thesis, Oxford University.

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Abstract

We investigate a Large Market Model with Stochastic Volatility given by Heston dynamics. We introduce two correlated market drivers: one corresponding to the assets and one corresponding to the volatilities. By passing to the limit with the number of assets, we derive a Stochastic Partial Differential Equation (SPDE) governing the behaviour of the two dimensional limit density. We define the loss process as a functional of this density. We discretize the SPDE in order to price selected complex credit derivatives: Single Tranche Collateralized Debt Obligations (CDOs) and Forward Start CDOs. We study the impact of varying model parameters on the loss process and the pricing.

Item Type:Thesis (Masters)
Subjects:H - N > Mathematics education
Research Groups:Mathematical and Computational Finance Group
ID Code:1844
Deposited By: Laura Auger
Deposited On:07 Aug 2014 07:00
Last Modified:29 May 2015 19:32

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