re : convergence of the research model i was curious about the accuracy of our credit reserve model as a function of
the
number of simulations we use . this question , i think , is not so important
when we
calculate credit reserve , because the assumptions underlying our model are
pretty
rough anyway ( here i mean the assumptions regarding price processes ,
correlations , etc . )
this question becomes more essential when we talk about calculating
sensitivities of the
credit reserve to various factors . when the magnitude of the sensitivity is
comparable
to the accuracy of calculation of the credit reserve , what is the accuracy of
such sensitivity ?
i performed a numerical experiment where i calculated the expected loss
for a simple portfolio with one counterparty ( sithe ind power ) for different
number of simulations ( 10 , 100 , 1000 , 10000 , 100000 ) using old research
credit model .
you can see how the result converges and the relative error ( compared to the
result for 100000 simulations which is assumed to be the most accurate ) in
the
attached file .
tanya .
re : convergence of the research model
i was curious about the accuracy of our credit reserve model as a function of
the
number of simulations we use . this question , i think , is not so important
when we
calculate credit reserve , because the assumptions underlying our model are
pretty
rough anyway ( here i mean the assumptions regarding price processes ,
correlations , etc . )
this question becomes more essential when we talk about calculating
sensitivities of the
credit reserve to various factors . when the magnitude of the sensitivity is
comparable
to the accuracy of calculation of the credit reserve , what is the accuracy of
such sensitivity ?
i performed a numerical experiment where i calculated the expected loss
for a simple portfolio with one counterparty ( sithe ind power ) for different
number of simulations ( 10 , 100 , 1000 , 10000 , 100000 ) using old research
credit model .
you can see how the result converges and the relative error ( compared to the
result for 100000 simulations which is assumed to be the most accurate ) in
the
attached file .
tanya .