Estimating financial risk measures for options

Ghulam Sorwar and Kevin Dowd

Journal of Banking & Finance, 2010, vol. 34, issue 8, 1982-1992

Abstract: This paper proposes a simulation-lattice procedure to estimate financial risk measures for option positions. The framework proposed can be applied to many different kinds of options, including exotic and vanilla options; it can take account of early exercise features; heavy tails in underlying processes; estimate different risk measures, including VaR, Expected Shortfall and Spectral Risk Measures; and in a limited way it can be generalized to accommodate multiple-factors. It avoids many of the limitations of existing approaches and, in particular, avoids the problems associated approaches based on delta-gamma and similar approximations. It also generates some interesting results about the risk measures of some illustrative options positions.

Keywords: Financial; risk; measures; Path; dependent; options; Fat; tail; Simulation (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (8)

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