Backtesting Derivative Portfolios with FHS

Giovanni Barone Adesi, Kostas Giannopoulos and Les Vosper

Chapter 3 in Simulating Security Returns: A Filtered Historical Simulation Approach, 2014, pp 30-65 from Palgrave Macmillan

Abstract: Abstract Filtered historical simulation provides the general framework to our backtests of portfolios of derivative securities held by a large sample of financial institutions. We allow for stochastic volatility and exchange rates. Correlations are maintained implicitly by our simulation procedure. Options are re-priced at each node. Overall results support the adequacy of our framework, but our VaR numbers are too high for swap portfolios at long horizons and too low for options and futures portfolios at short horizons.

Keywords: Stochastic Volatility; Implied Volatility; Historical Simulation; Option Contract; Short Horizon (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-46555-9_3

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DOI: 10.1057/9781137465559_3

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