Optimization of Monte Carlo Procedures for Value at Risk Estimates |
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| Authors: | Sabrina Antonelli & Maria Gabriella Iovino |
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| Institution: | Dipartimento di Statistica, University of Perugia, Italy,;Instituto di Matematica Finanziaria, University of Perugia, Italy |
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| Abstract: | This paper proposes a methodology which improves the computational efficiency of the Monte Carlo simulation approach of value at risk (VaR) estimates. Principal components analysis is used to reduce the number of relevant sources of risk driving the portfolio dynamics. Moreover, large deviations techniques are used to provide an estimate of the minimum number of price scenarios to be simulated to attain a given accuracy. Numerical examples are provided and show the good performance of the methodolgy proposed.
(J.E.L.: C15, G1). |
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