In Chap. 2 we defined a general framework to enable estimation of counterparty exposure for different product classes. Throughout, we highlighted the importance of being able to simulate price processes of different asset classes simultaneously and in consistent fashion. This was accomplished by simulating a martingale process for each asset class. By doing so, the models fit time-zero forward curves by construction, so that calibration involves only choosing the volatility structure for the martingale pertaining to each asset class.
In this chapter we focus on specific choices of models for different asset classes, discussing how they can be implemented and calibrated within our framework.
KeywordsOption Price Implied Volatility Credit Spread Stochastic Volatility Model Asset Class
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