Article ID: | iaor20107391 |
Volume: | 58 |
Issue: | 5 |
Start Page Number: | 1481 |
End Page Number: | 1490 |
Publication Date: | Sep 2010 |
Journal: | Operations Research |
Authors: | Staum Jeremy, Nelson Barry L, Lan Hai |
Keywords: | portfolio management |
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.