Efficient Risk Simulations for Linear Asset Portfolios

Halis Sak, Wolfgang Hörmann, Josef Leydold

Publikation: Working/Discussion PaperWU Working Paper

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We consider the problem of calculating tail probabilities of the returns of linear asset portfolios. As flexible and accurate model for the logarithmic returns we use the $t$-copula dependence structure and marginals following the generalized hyperbolic distribution. Exact calculation of the tail-loss probabilities is not possible and even simulation leads to challenging numerical problems. Applying a new numerical inversion method for the generation of the marginals and importance sampling with carefully selected mean shift we develop an efficient simulation algorithm. Numerical results for a variety of realistic portfolio examples show an impressive performance gain.
PublikationsstatusVeröffentlicht - 1 Dez. 2008


ReiheResearch Report Series / Department of Statistics and Mathematics

WU Working Paper Reihe

  • Research Report Series / Department of Statistics and Mathematics