DocumentCode :
2142049
Title :
Stochastic Volatility in Underlyings and Downside Risk of Derivative Portfolios
Author :
Leoni, Patrick L.
Author_Institution :
Dept. of Bus. & Econ., Univ. of Southern Denmark, Odense M, Denmark
fYear :
2009
fDate :
20-22 Sept. 2009
Firstpage :
1
Lastpage :
4
Abstract :
We carry out a Monte-Carlo simulation of the downside risk of a standard derivative portfolio as a function of a change in stochastic volatility of the underlyings. We find that the reduction in downside risk for most loss levels becomes statistically significant only for very high volatility reversion levels. Those levels are hardly found in practice, and they lead to mild reductions of downside risk. The paper illustrates the counterintuitive property that the common selection of underlyings with low fluctuations in volatility does not significantly reduce the downside risk of derivative portfolios, whereas it severely narrows down the set of tradable assets.
Keywords :
Monte Carlo methods; investment; stochastic processes; Monte-Carlo simulation; derivative portfolios; financial derivatives; stochastic volatility; Concrete; Displays; Fluctuations; Helium; Investments; Portfolios; Pricing; Regulators; Risk management; Stochastic processes;
fLanguage :
English
Publisher :
ieee
Conference_Titel :
Management and Service Science, 2009. MASS '09. International Conference on
Conference_Location :
Wuhan
Print_ISBN :
978-1-4244-4638-4
Electronic_ISBN :
978-1-4244-4639-1
Type :
conf
DOI :
10.1109/ICMSS.2009.5303599
Filename :
5303599
Link To Document :
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