A simulation environment for discontinuous portfolio value processes

Giorgio Consigli and Antonio Di Cesare ()

Applied Stochastic Models in Business and Industry, 2001, vol. 17, issue 1, 41-55

Abstract: We present a simulation‐based approach to the estimation of portfolio's Value‐at‐Risk – VaR—, based on the definition of a jump‐diffusion continuous time process driven by Wiener and Poisson uncertainty. We introduce to this end a novel characterization of the intensity rate of the Poisson process, modelling the arrival of shocks to the market, as a function of a credit spread curve estimated in high‐risk emerging bond markets. The procedure is described and tested on the August 1998 Russian crisis whose impact on liquid equity markets is also estimated. Copyright © 2001 John Wiley & Sons, Ltd.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmbi:v:17:y:2001:i:1:p:41-55

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