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.
Original language | English |
---|
DOIs | |
---|
Publication status | Published - 1 Dec 2008 |
---|
Series | Research Report Series / Department of Statistics and Mathematics |
---|
Number | 80 |
---|
- Research Report Series / Department of Statistics and Mathematics