by Alessandro Gnoatto, Francesca Biagini, Katharina Oberpriller
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Suggested foundations for stochastic processes and pricing and credit and counterparty risk. Specialist prerequisites vary by paper.
Read conditional default and exposure quantities.
Follow Brownian dynamics and the second-order term in Itô calculus.
Separate default probability, loss severity and exposure.
Connect stochastic dynamics to no-arbitrage prices.
Translate continuous dynamics into a numerical experiment.
Study dependence between defaults.
Start in discrete time, move to Brownian motion, then read the original pricing argument and simulate it.