Estimating risks of option books using neural-SDE market models

Samuel N. Cohen, Christoph Reisinger and Sheng Wang

Papers from arXiv.org

Abstract: In this paper, we examine the capacity of an arbitrage-free neural-SDE market model to produce realistic scenarios for the joint dynamics of multiple European options on a single underlying. We subsequently demonstrate its use as a risk simulation engine for option portfolios. Through backtesting analysis, we show that our models are more computationally efficient and accurate for evaluating the Value-at-Risk (VaR) of option portfolios, with better coverage performance and less procyclicality than standard filtered historical simulation approaches.

Date: 2022-02
New Economics Papers: this item is included in nep-cmp, nep-cwa and nep-rmg
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2202.07148

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