Nested Simulation in Portfolio Risk Measurement

@article{Gordy2010NestedSI,
  title={Nested Simulation in Portfolio Risk Measurement},
  author={Michael B. Gordy and Sandeep Juneja},
  journal={Management Science},
  year={2010},
  volume={56},
  pages={1833-1848}
}
Risk measurement for derivative portfolios almost invariably calls for nested simulation. In the outer step one draws realizations of all risk factors up to the horizon, and in the inner step one re-prices each instrument in the portfolio at the horizon conditional on the drawn risk factors. Practitioners may perceive the computational burden of such nested schemes to be unacceptable, and adopt a variety of second-best pricing techniques to avoid the inner simulation. In this paper, we question… CONTINUE READING
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