A Confidence Interval Procedure for Expected Shortfall Risk Measurement via Two-Level Simulation

A Confidence Interval Procedure for Expected Shortfall Risk Measurement via Two-Level Simulation

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Article ID: iaor20107391
Volume: 58
Issue: 5
Start Page Number: 1481
End Page Number: 1490
Publication Date: Sep 2010
Journal: Operations Research
Authors: , ,
Keywords: portfolio management
Abstract:

We develop and evaluate a two-level simulation procedure that produces a confidence interval for expected shortfall. The outer level of simulation generates financial scenarios, whereas the inner level estimates expected loss conditional on each scenario. Our procedure uses the statistical theory of empirical likelihood to construct a confidence interval. It also uses tools from the ranking-and-selection literature to make the simulation efficient.

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