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A simulation environment for discontinuous portfolio value processes
Author(s) -
Consigli Giorgio,
Di Cesare Antonio
Publication year - 2001
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.430
Subject(s) - portfolio , econometrics , poisson distribution , jump , economics , value at risk , jump diffusion , bond , equity (law) , poisson process , financial economics , mathematics , risk management , statistics , finance , physics , law , quantum mechanics , political science
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.