Binomial Approximation to Locally Dependent Collateralized Debt Obligations

In this paper, we develop Stein’s method for binomial approximation using the stop-loss metric that allows one to obtain a bound on the error term between the expectation of call functions. We obtain the results for a locally dependent collateralized debt obligation (CDO), under certain conditions o...

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Bibliographic Details
Published inMethodology and computing in applied probability Vol. 25; no. 4; p. 81
Main Authors Kumar, Amit N., Vellaisamy, P.
Format Journal Article
LanguageEnglish
Published New York Springer US 01.12.2023
Springer Nature B.V
Subjects
Approximation
Binomial distribution
Business and Management
Collateralized debt obligations
Economics
Electrical Engineering
Life Sciences
Mathematical analysis
Mathematics and Statistics
Methods
Random variables
Statistics
Stein’s method
Primary: 62E17
62E20
Error bounds
Binomial distribution
Secondary: 60F05
CDO
60E05
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Summary:In this paper, we develop Stein’s method for binomial approximation using the stop-loss metric that allows one to obtain a bound on the error term between the expectation of call functions. We obtain the results for a locally dependent collateralized debt obligation (CDO), under certain conditions on moments. The results are also exemplified for an independent CDO. Finally, it is shown that our bounds are sharper than the existing bounds.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
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ISSN:1387-5841
1573-7713
DOI:10.1007/s11009-023-10057-8