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Scenario Simulation: Theory and methodology (*)

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Author Info

  • Farshid Jamshidian

    (New Products and Strategic Trading, Sakura Global Capital, 42 New Broad Street, London EC2M 1JX, United Kingdom)

  • Yu Zhu

    (Risk Assessment and Control, Sakura Global Capital, 65 East 55 Street, New York, NY 10022, USA)

Abstract

This paper presents a new simulation methodology for quantitative risk analysis of large multi-currency portfolios. The model discretizes the multivariate distribution of market variables into a limited number of scenarios. This results in a high degree of computational efficiency when there are many sources of risk and numerical accuracy dictates a large Monte Carlo sample. Both market and credit risk are incorporated. The model has broad applications in financial risk management, including value at risk. Numerical examples are provided to illustrate some of its practical applications.

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Bibliographic Info

Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 1 (1996)
Issue (Month): 1 ()
Pages: 43-67
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:spr:finsto:v:1:y:1996:i:1:p:43-67

Note: received: February 1996; final revision received: June 1996
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For corrections or technical questions regarding this item, or to correct its listing, contact: (Guenther Eichhorn) or (Christopher F Baum).

Related research

Keywords: Risk analysis · Monte Carlo studies · approximations to distributions;

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Cited by:
  1. Andrea Beltratti & Andrea Consiglio & Stavros A. Zenios, 1998. "Scenario Modeling for the Management of International Bond Portfolios," Center for Financial Institutions Working Papers 98-20, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Roberta Fiori & Simonetta Iannotti, 2006. "Scenario Based Principal Component Value-at-Risk: an Application to Italian Banks' Interest Rate Risk Exposure," Temi di discussione (Economic working papers) 602, Bank of Italy, Economic Research and International Relations Area.

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