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A simulation environment for discontinuous portfolio value processes

A simulation environment for discontinuous portfolio value processes We present a simulation‐based approach to the estimation of portfolio's Value‐at‐Risk – VaR—, based on the definition of a jump‐diffusion continuous time process driven by Wiener and Poisson uncertainty. We introduce to this end a novel characterization of the intensity rate of the Poisson process, modelling the arrival of shocks to the market, as a function of a credit spread curve estimated in high‐risk emerging bond markets. The procedure is described and tested on the August 1998 Russian crisis whose impact on liquid equity markets is also estimated. Copyright © 2001 John Wiley & Sons, Ltd. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Stochastic Models in Business and Industry Wiley

A simulation environment for discontinuous portfolio value processes

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References (10)

Publisher
Wiley
Copyright
Copyright © 2001 John Wiley & Sons, Ltd.
ISSN
1524-1904
eISSN
1526-4025
DOI
10.1002/asmb.430
Publisher site
See Article on Publisher Site

Abstract

We present a simulation‐based approach to the estimation of portfolio's Value‐at‐Risk – VaR—, based on the definition of a jump‐diffusion continuous time process driven by Wiener and Poisson uncertainty. We introduce to this end a novel characterization of the intensity rate of the Poisson process, modelling the arrival of shocks to the market, as a function of a credit spread curve estimated in high‐risk emerging bond markets. The procedure is described and tested on the August 1998 Russian crisis whose impact on liquid equity markets is also estimated. Copyright © 2001 John Wiley & Sons, Ltd.

Journal

Applied Stochastic Models in Business and IndustryWiley

Published: Jan 1, 2001

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