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An Empirical Evaluation of Value at Risk by Scenario Simulation
Company: Journal of Derivatives
Company Url: Click here to open
Year Of Publication: 2000
Month Of Publication: Summer
Pages: 12-29
Download Count: 8247
View Count: 23153
Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 9-3-2002
Publisher: Administrator
Summary
Abstract: Scenario simulation was proposed by Jamshidian and Zhu (1997) as a method to separate computationally intensive portfolio revaluations from the simulation step in VaR by Monte Carlo. For multicurrency interest rate derivatives portfolios examined in this paper, the relative performance of scenario simulation is erratic when compared with standard Monte Carlo results. Although by design the discrete distributions used in scenario simulation converge to their continuous distributions, convergence appears to be slow, with irregular oscillations that depend on portfolio characteristics and the correlation structure of the risk factors. Periodic validation of scenario-simulated VaR results by cross-checking with other methods is advisable.
Author(s)
Abken, Peter Sign in to follow this author
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