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Monte-Carlo Estimations of the Downside Risk of Derivative Portfolios

Patrick Leoni ()

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: We simulate the performances of a standard derivatives portfolio to evaluate the relevance of benchmarking in terms of downside risk reduction. The simulation shows that benchmarking always leads to significantly more severe losses in average than those generated by letting the portfolio reach the end of a given horizon. Moreover, switching from a 0-correlation across underlyings to a very mild form of correlation significantly increases the probability of reaching the downside benchmark before maturity, whereas adding more correlation does not significantly increase this figure.

Keywords: : Derivatives; Portfolio management; Benchmarking; Downside risk; Monte-Carlo simulations. (search for similar items in EconPapers)
Pages: 23 pages
Date: 2007
New Economics Papers: this item is included in nep-cmp, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:may:mayecw:n1760607

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