Publications:
An Empirical Evaluation of Value at Risk by Scenario Simulation
by Peter A. Abken
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.
Disclaimer
As with all OCC Working Papers, the opinions expressed in this paper are those of the author alone, and
do not necessarily reflect the views of the Office of the Comptroller of the Currency or the Department of the Treasury.
Any whole or partial reproduction of material in this paper should include the following citation:
Abken, "An Empirical Evaluation of Value at Risk
by Scenario Simulation," Office of the Comptroller of the Currency, E&PA Working Paper 2000-3, March 2000.
Availability
The paper is available for viewing in Adobe's PDF format. The PDF viewer is available for
download free from Adobe in versions for
different platforms.
The complete paper is available in hard copy from the OCC's Communications Division. If you would like to receive a copy of a paper through the U.S. Postal Service:
- Write to the Communications Division, Mail Stop 3-3, Office of the Comptroller of the Currency, Washington, DC 20219, or
- Send an e-mail request to the Communications Division at foia-pa@occ.treas.gov.
Be sure to identify the paper(s) you want and to include your complete mailing address, including ZIP code.
|
