Article ID: | iaor20164706 |
Volume: | 63 |
Issue: | 5 |
Start Page Number: | 1077 |
End Page Number: | 1097 |
Publication Date: | Oct 2015 |
Journal: | Operations Research |
Authors: | Broadie Mark, Moallemi Ciamac C, Du Yiping |
Keywords: | statistics: regression, simulation, financial |
We introduce a regression‐based nested Monte Carlo simulation method for the estimation of financial risk. An outer simulation level is used to generate financial risk factors and an inner simulation level is used to price securities and compute portfolio losses given risk factor outcomes. The mean squared error (MSE) of standard nested simulation converges at the rate