A Confidence Interval Procedure for Expected Shortfall Risk Measurement via Two-Level Simulation

Hai Lan (), Barry L. Nelson () and Jeremy Staum ()
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Hai Lan: Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai 200052, China
Barry L. Nelson: Department of Industrial Engineering and Management Sciences, Northwestern University, Evanston, Illinois 60208
Jeremy Staum: Department of Industrial Engineering and Management Sciences, Northwestern University, Evanston, Illinois 60208

Operations Research, 2010, vol. 58, issue 5, 1481-1490

Abstract: We develop and evaluate a two-level simulation procedure that produces a confidence interval for expected shortfall. The outer level of simulation generates financial scenarios, whereas the inner level estimates expected loss conditional on each scenario. Our procedure uses the statistical theory of empirical likelihood to construct a confidence interval. It also uses tools from the ranking-and-selection literature to make the simulation efficient.

Keywords: conditional value-at-risk; worst conditional expectation; tail conditional expectation; conditional tail expectation; expected shortfall; empirical likelihood; two-level simulation; simulation; design of experiments; two-level simulation; simulation; efficiency; screening methods; finance; portfolio; risk management (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (16)

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