Simulation environment for discontinuous portfolio value processes

Giorgio Consigli, Antonio Di Cesare

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

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.

Original languageBritish English
Pages (from-to)41-55
Number of pages15
JournalApplied Stochastic Models in Business and Industry
Volume17
Issue number1
DOIs
StatePublished - Jan 2001

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