Computation of expected shortfall by fast detection of worst scenarios
From MaRDI portal
Publication:5014243
Abstract: We consider a multi-step algorithm for the computation of the historical expected shortfall such as defined by the Basel Minimum Capital Requirements for Market Risk. At each step of the algorithm, we use Monte Carlo simulations to reduce the number of historical scenarios that potentially belong to the set of worst scenarios. The number of simulations increases as the number of candidate scenarios is reduced and the distance between them diminishes. For the most naive scheme, we show that the L p-error of the estimator of the Expected Shortfall is bounded by a linear combination of the probabilities of inversion of favorable and unfavorable scenarios at each step, and of the last step Monte Carlo error associated to each scenario. By using concentration inequalities, we then show that, for sub-gamma pricing errors, the probabilities of inversion converge at an exponential rate in the number of simulated paths. We then propose an adaptative version in which the algorithm improves step by step its knowledge on the unknown parameters of interest: mean and variance of the Monte Carlo estimators of the different scenarios. Both schemes can be optimized by using dynamic programming algorithms that can be solved off-line. To our knowledge, these are the first non-asymptotic bounds for such estimators. Our hypotheses are weak enough to allow for the use of estimators for the different scenarios and steps based on the same random variables, which, in practice, reduces considerably the computational effort. First numerical tests are performed.
Recommendations
- Estimation methods for expected shortfall
- On estimating the conditional expected shortfall
- Utility-based shortfall risk: efficient computations via Monte Carlo
- Expected shortfall computation with multiple control variates
- Dynamic Minimization of Worst Conditional Expectation of Shortfall
- Worst-Case Expected Shortfall with Univariate and Bivariate Marginals
- Estimation of multiple period expected shortfall and median shortfall for risk management
- Approximation methods for multiple period Value at Risk and Expected Shortfall prediction
- Asymptotically efficient estimation of the conditional expected shortfall
- Stability analysis of the expected shortfall estimation
Cites work
- scientific article; zbMATH DE number 3089535 (Why is no real title available?)
- A Single-Sample Multiple Decision Procedure for Ranking Means of Normal Populations with known Variances
- Coherent measures of risk
- Concentration inequalities for sums and martingales
- Controlling a Stochastic Process with Unknown Parameters
- Dynamic semiparametric models for expected shortfall (and value-at-risk)
- Efficient VaR and expected shortfall computations for nonlinear portfolios within the delta-gamma approach
- Efficient risk estimation via nested sequential simulation
- Estimation methods for expected shortfall
- Nested simulation in portfolio risk measurement
- On estimating the conditional expected shortfall
- Sequential design and spatial modeling for portfolio tail risk measurement
- The Problem of the Greater Mean
- VALUE-AT-RISK AND EXPECTED SHORTFALL FOR LINEAR PORTFOLIOS WITH ELLIPTICALLY DISTRIBUTED RISK FACTORS
- VaR and expected shortfall: a non-normal regime switching framework
Cited in
(3)
This page was built for publication: Computation of expected shortfall by fast detection of worst scenarios
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5014243)
