Virtual historical simulation for estimating the conditional VaR of large portfolios

DOI10.1016/J.JECONOM.2019.12.008zbMATH Open1456.62246arXiv1909.04661OpenAlexW2997265644WikidataQ126466844 ScholiaQ126466844MaRDI QIDQ2190229FDOQ2190229

Authors: C. Francq, Jean-Michel Zakoïan 

Publication date: 18 June 2020

Published in: Journal of Econometrics (Search for Journal in Brave)

Abstract: In order to estimate the conditional risk of a portfolio's return, two strategies can be advocated. A multivariate strategy requires estimating a dynamic model for the vector of risk factors, which is often challenging, when at all possible, for large portfolios. A univariate approach based on a dynamic model for the portfolio's return seems more attractive. However, when the combination of the individual returns is time varying, the portfolio's return series is typically non stationary which may invalidate statistical inference. An alternative approach consists in reconstituting a "virtual portfolio", whose returns are built using the current composition of the portfolio and for which a stationary dynamic model can be estimated. This paper establishes the asymptotic properties of this method, that we call Virtual Historical Simulation. Numerical illustrations on simulated and real data are provided.

Full work available at URL: https://arxiv.org/abs/1909.04661

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zbMATH Keywords

dynamic portfolioestimation riskfiltered historical simulationaccuracy of VaR estimationvirtual returns

Mathematics Subject Classification ID

Asymptotic properties of parametric estimators (62F12) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Estimation in multivariate analysis (62H12) Applications of statistics to actuarial sciences and financial mathematics (62P05) Statistical methods; risk measures (91G70)

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Cited In (2)

• Editorial: Nonlinear financial econometrics JoE special issue introduction
• Workload portfolio optimization for virtualized computer systems based on semiparametric quantile function estimation

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