Monte-Carlo Estimations of the Downside Risk of Derivative Portfolios
AbstractWe simulate the performances of a standard derivatives portfolio to evaluate the relevance of benchmarking in terms of downside risk reduction. The simulation shows that benchmarking always leads to significantly more severe losses in average than those generated by letting the portfolio reach the end of a given horizon. Moreover, switching from a 0-correlation across underlyings to a very mild form of correlation significantly increases the probability of reaching the downside benchmark before maturity, whereas adding more correlation does not significantly increase this figure.
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Bibliographic InfoPaper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1760607.
Length: 23 pages
Date of creation: 2007
Date of revision:
: Derivatives; Portfolio management; Benchmarking; Downside risk; Monte-Carlo simulations.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-09 (All new papers)
- NEP-CMP-2007-09-09 (Computational Economics)
- NEP-FMK-2007-09-09 (Financial Markets)
- NEP-RMG-2007-09-09 (Risk Management)
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