Implied value-at-risk and model-free simulation

Carole Bernard (), Andrea Perchiazzo () and Steven Vanduffel ()
Additional contact information
Carole Bernard: Grenoble Ecole de Management (GEM)
Andrea Perchiazzo: Vrije Universiteit Brussel (VUB)

Annals of Operations Research, 2024, vol. 336, issue 1, No 30, 925-943

Abstract: Abstract We propose a novel model-free approach for extracting the risk-neutral quantile function of an asset using options written on this asset. We develop two applications. First, we show how for a given stochastic asset model our approach makes it possible to simulate the underlying terminal asset value under the risk-neutral probability measure directly from option prices. Specifically, our approach outperforms existing approaches for simulating asset values for stochastic volatility models such as the Heston, the SVI, and the SABR models. Second, we estimate the option implied value-at-risk (VaR) and the option implied tail value-at-risk (TVaR) of a financial asset in a direct manner. We also provide an empirical illustration in which we use S &P 500 Index options to construct an implied VaR Index and we compare it with the VIX Index.

Keywords: Implied value-at-risk; Model-free simulation under risk-neutral probability measure; Exact simulation; Stochastic volatility models; SABR model; Heston model (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10479-022-05048-w Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:annopr:v:336:y:2024:i:1:d:10.1007_s10479-022-05048-w

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-022-05048-w

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().