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QMC techniques for CAT bond pricing

By Hansjörg Albrecher, Jürgen Hartinger and Robert F. Tichy

Abstract

Summary. Pricing of catastrophe bonds leads to integrals with discontinuous and formally infinite-dimensional integrands. We investigate the suitability of Quasi-Monte Carlo methods for the numerical evaluation of these integrals and develop several variance-reduction algorithms. Furthermore, the performance of Quasi-Monte Carlo sequences for asymptotically efficient rare event simulation is examined. Various numerical illustrations are given. Key words: Quasi-Monte Carlo, insurance linked securities, rare events, importance sampling, variation reduction

Year: 2004
OAI identifier: oai:CiteSeerX.psu:10.1.1.134.440
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