Nested Simulation in Portfolio Risk Measurement

• 成果类型: Article
• 署名作者: Gordy, Michael B.; Juneja, Sandeep
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors; Tata Institute of Fundamental Research (TIFR)
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1100.1213
• 发表日期: 2010
• 页码: 1833-1848
• 关键词: nested simulation; loss distribution; Value-at-risk; expected shortfall; jackknife estimator

摘要

Risk measurement for derivative portfolios almost invariably calls for nested simulation. In the outer step, one draws realizations of all risk factors up to the horizon, and in the inner step, one reprices each instrument in the portfolio at the horizon conditional on the drawn risk factors. Practitioners may perceive the computational burden of such nested schemes to be unacceptable and adopt a variety of second-best pricing techniques to avoid the inner simulation. In this paper, we question whether such short cuts are necessary. We show that a relatively small number of trials in the inner step can yield accurate estimates, and we analyze how a fixed computational budget may be allocated to the inner and the outer step to minimize the mean square error of the resultant estimator. Finally, we introduce a jackknife procedure for bias reduction.