Generating VaR scenarios with product beta distributions

Dietmar Pfeifer and Olena Ragulina

Papers from arXiv.org

Abstract: We propose a Monte Carlo simulation method to generate stress tests by VaR scenarios under Solvency II for dependent risks on the basis of observed data. This is of particular interest for the construction of Internal Models and requirements on evaluation processes formulated in the Commission Delegated Regulation. The approach is based on former work on partition-ofunity copulas, however with a direct scenario estimation of the joint density by product beta distributions after a suitable transformation of the original data.

Date: 2018-08, Revised 2019-01
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Published in RISKS 2018, 6, 122

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