Stochastic Kriging for Efficient Nested Simulation of Expected Shortfall

@article{Liu2010StochasticKF,
  title={Stochastic Kriging for Efficient Nested Simulation of Expected Shortfall},
  author={M. Liu and J. Staum},
  journal={Journal of Risk},
  year={2010},
  volume={12},
  pages={3-27}
}
We use stochastic kriging, a metamodeling technique, to speed up nested simulation of expected shortfall, a portfolio risk measure. Evaluating a risk measure of a portfolio that includes derivative securities may require nested Monte Carlo simulation. The outer level simulates financial scenarios and the inner level of simulation estimates the portfolio value given a scenario. Spatial metamodeling enables inference about portfolio values in a scenario based on inner-level simulation of nearby… Expand
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