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 language | British English |
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Pages (from-to) | 41-55 |
Number of pages | 15 |
Journal | Applied Stochastic Models in Business and Industry |
Volume | 17 |
Issue number | 1 |
DOIs | |
State | Published - Jan 2001 |