On a CVA system with limited computational power.

For pricing, What is best, More timesteps and less number of simulations or less timesteps and more number of simulations?

for example with a whole portfolio of long term derivatives with several counterparties on a long term analysis: 200 timesteps (more granular at first) and 3,000 simulations vs 120 timesteps and 10,000 simulations?

What are your thoughts?



Depends on the portfolio, know that is not very helpful! So here is a simple test. Try a reasonable base, say 100 times 10k, then increase the number of timesteps, see how much the results change by, and then do the same for the number of simulations. Whichever produces bigger delta, wins! Repeat with a different base to ensure results are robust!

  • $\begingroup$ Oh, I see, just one question, Why the bigger delta? $\endgroup$ – Mauro Meneses Ramirez Sep 6 '18 at 19:18
  • $\begingroup$ Bigger delta means bigger impact. Btw, between 200x3k vs 120x10k, I would normally expect the latter to perform better! $\endgroup$ – Magic is in the chain Sep 6 '18 at 19:20

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