Title :
Stochastic kriging for conditional value-at-risk and its sensitivities
Author :
Xi Chen ; Nelson, Barry L. ; Kyoung-Kuk Kim
Author_Institution :
Dept. of Ind. Eng. & Manage. Sci., Northwestern Univ., Evanston, IL, USA
Abstract :
Measuring risks in asset portfolios has been one of the central topics in the financial industry. Since the introduction of coherent risk measures, studies on risk measurement have flourished and measures beyond value-at-risk, such as expected shortfall, have been adopted by academics and practitioners. However, the complexity of financial products makes it very difficult and time consuming to perform the numerical tasks necessary to compute these risk measures. In this paper, we introduce a stochastic kriging metamodel-based method for efficient estimation of risks and their sensitivities. In particular, this method uses gradient estimators of assets in a portfolio and gives the best linear unbiased predictor of the risk sensitivities with minimum mean squared error. Numerical comparisons of the proposed method with two other stochastic kriging based approaches demonstrate the promising role that the proposed method can play in the estimation of financial risk.
Keywords :
financial management; gradient methods; mean square error methods; risk analysis; statistical analysis; stochastic processes; asset portfolio; conditional value-at-risk; expected shortfall; financial industry; financial risk estimation; gradient estimator; linear unbiased predictor; minimum mean squared error; numerical comparisons; numerical task; risk measurement; risk sensitivity; stochastic kriging metamodel-based method; Approximation methods; Covariance matrix; Estimation; Portfolios; Reactive power; Sensitivity; Stochastic processes;
Conference_Titel :
Simulation Conference (WSC), Proceedings of the 2012 Winter
Conference_Location :
Berlin
Print_ISBN :
978-1-4673-4779-2
Electronic_ISBN :
0891-7736
DOI :
10.1109/WSC.2012.6465096