Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
481165 | European Journal of Operational Research | 2010 | 8 Pages |
Abstract
We consider the problem of calculating tail probabilities of the returns of linear asset portfolios. As a flexible and accurate model for the logarithmic returns we use the t-copula dependence structure and marginals following the generalized hyperbolic distribution. Exact calculation of the tail-loss probabilities is not possible and even simulation leads to challenging numerical problems. Applying a new numerical inversion method for the generation of the marginals and importance sampling with carefully selected mean shift we develop an efficient simulation algorithm. Numerical results for a variety of realistic portfolio examples show an impressive performance gain.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Halis Sak, Wolfgang Hörmann, Josef Leydold,