Real World Algorithmic Exposure: An Innovative New Approach for Nested Simulations
On Wednesday, September 16th featured speaker Dr. Ping Sun, Executive Director of Financial Engineering at Numerix, provided an introduction to Real World Algorithmic Exposure and outlined how it can be utilized by both capital market and insurance practitioners for advanced risk measures like RW PFE and for other RW/RN nested simulations.
The computation of counterparty credit exposures such as Potential Future Exposure (PFE), as well as Economic Capital calculations by insurance firms, require risk-neutral (RN) pricing at future time horizons along real world (RW) scenarios. The challenge with these calculations is that the nested simulations (often called Brute Force simulations) can be very computationally challenging for large portfolios of deals, requiring billions of simulation paths and taking significant amounts of time.
An innovative new approach for nested simulations has been introduced recently. The new approach, called Real World Algorithmic Exposure, combines resampling with the Backward Monte Carlo-based Algorithmic Exposure (also known as American or Least Squares Monte Carlo). The approach avoids the inefficiency of the Brute Force approach and dramatically reduces computation times, by using resampling to bridge the gap between real world economic scenarios and risk-neutral pricing scenarios, and by performing the computation in one step via Backward Monte Carlo.
On Wednesday, September 16th featured speaker Dr. Ping Sun, Executive Director of Financial Engineering at Numerix, provided an introduction to Real World Algorithmic Exposure and outlined how it can be utilized by both capital market and insurance practitioners for advanced risk measures like RW PFE and for other RW/RN nested simulations.
DR. SUN COVERED:
- Real world counterparty credit exposure and nested simulations
- Risk-Neutral vs. Real World Modelling: Bridging the Gap
- Real World Algorithmic Exposures for Advanced Risk Measures
To view the on-demand webinar, just register on the right side of this page.
Featured Speakers
Ping Sun, PhD
Dr. Sun, PhD is Senior Vice President, Financial Engineering at Numerix. He is also product manager of the Numerix CrossAsset analytics platform. During his career at Numerix, Dr. Sun’s work has appeared in number of publications and academic journals, and he has been showcased as a lecturer at a range of academic events and industry conferences. Dr. Sun served as a consultant to Lehman Brothers as a FX / EQ Desk Quant, and his extensive experience includes working to develop the Numerix cross-currency Economic Scenario Generator. He earned a Doctorate Degree in Physics from City College of New York, and a Master’s Degree and Undergraduate Degree in Physics from Fudan University in Shanghai, China.
Greg Murray
Greg Murray is responsible for increasing awareness of the Numerix brand in financial markets around the globe, as well as conducting strategic industry research for different departments within Numerix. Previously, he oversaw product and field marketing initiatives at the company, and he started his tenure in a sales role. Prior to Numerix, Mr. Murray worked in derivative analytics sales roles at other software firms, and he held derivative trading positions for seven years as an option market-maker and proprietary trader across a variety of asset classes.
