Scenario Simulation: Theory and methodology (*)

Farshid Jamshidian and Yu Zhu
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Yu Zhu: Risk Assessment and Control, Sakura Global Capital, 65 East 55 Street, New York, NY 10022, USA

Finance and Stochastics, 1996, vol. 1, issue 1, 43-67

Abstract: This paper presents a new simulation methodology for quantitative risk analysis of large multi-currency portfolios. The model discretizes the multivariate distribution of market variables into a limited number of scenarios. This results in a high degree of computational efficiency when there are many sources of risk and numerical accuracy dictates a large Monte Carlo sample. Both market and credit risk are incorporated. The model has broad applications in financial risk management, including value at risk. Numerical examples are provided to illustrate some of its practical applications.

Keywords: Risk; analysis; ·; Monte; Carlo; studies; ·; approximations; to; distributions (search for similar items in EconPapers)
JEL-codes: C15 D84 (search for similar items in EconPapers)
Date: 1996
Note: received: February 1996; final revision received: June 1996
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Citations: View citations in EconPapers (24)

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