Long-Term Portfolio Simulation: For XVA, Limits, Liquidity and Regulatory Capital by Alexander Sokol

Author:Alexander Sokol [Sokol, Alexander]
Language: eng
Format: epub, mobi
Publisher: Risk Books
Published: 2014-09-09T22:00:00+00:00

(4.5)

The dependence on state variables along the entire Monte Carlo path is implicit in both terms under the expectation. The subscript Q in EQ indicates that the expectation is taken with risk-neutral (Q) probabilities. In the context of Monte Carlo simulation, the expectation EQ[·] denotes averaging over the Monte Carlo paths n = 1,…,N

(4.6)

AMC does not require a specific measure. For the interest rate models, the convenient choice is the rolling spot measure, in which the stochastic discount factor for path n is given by

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