Simulate Risk is a tool for assessing the risk of holding stock portfolios for a day. Portfolio weights, which gives minimum risk, is also provided as the output of the simulation. It is designed such that the user does not require any expertise in any scientific field. State-of-the-art modeling (copula) and an efficient simulation technique (importance sampling) are employed in the background of the application so that returned risks are quite realistic and precise. For testing how realistic the returned risks are, a back-testing option is provided prior to the simulation. Overall this application is designed as a testing and thus a learning suite for understanding the risk structure of the stock portfolios.
The following main references were used in developing the application;
1. McNeil, A. J., Frey, R. and Embrechts, P., Quantitative Risk Management: Concepts, Techniques, Tools, 2005 (Princeton, NJ: Princeton University Press).
2. Glasserman, P., Monte Carlo Methods in Financial Engineering, 2004 (Springer).
3. Derflinger, G., Hörmann, W., and Leydold, J., Random variate generation by numerical inversion when only the density function is known. ACM Transactions on Modeling and Computer Simulation, 2010, 20(4), 1–25.
4. Sak, H., Hörmann, W., and Leydold, J., Efficient risk simulations for linear asset portfolios in the t-copula model. European Journal of Operational Research, 2010, 202(3), 802–809.
5. Nieppola, O., Backtesting Value-At-Risk Models. Master's Thesis, Helsinki School of Economics, 2009.
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- Last changed:
- Dec 09, 2012
- Halis Sak
- 6.7 MB
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