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Abstract
We consider the problem of calcu-lating tail probabilities of the
returns of linear asset portfolios. As a flexible and accurate model for the logarithmic returns we use the t-copula dependence structure and marginals following the generalized hyperbolic distribution. Exact calcu- lation 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.
DOI 10.1016/j.ejor.2009.06.025
returns of linear asset portfolios. As a flexible and accurate model for the logarithmic returns we use the t-copula dependence structure and marginals following the generalized hyperbolic distribution. Exact calcu- lation 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.
DOI 10.1016/j.ejor.2009.06.025
| Original language | English |
|---|---|
| Pages (from-to) | 802 - 809 |
| Journal | European Journal of Operational Research (EJOR) |
| Volume | 202 |
| Issue number | 3 |
| Publication status | Published - 1 Dec 2010 |
Other versions
- 1 WU Working Paper
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Efficient Risk Simulations for Linear Asset Portfolios
Sak, H., Hörmann, W. & Leydold, J., 1 Dec 2008, (Research Report Series / Department of Statistics and Mathematics; No. 80).Publication: Working/Discussion Paper › WU Working Paper
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