Abstract
This chapter discusses applications of Monte Carlo simulation to risk management. It addresses the problem of measuring the risk in a portfolio of assets, rather than computing the prices of individual securities. Simulation is useful in estimating the profit and loss distribution of a portfolio and thus in computing risk measures that summarize this distribution. We give particular attention to the problem of estimating the probability of large losses, which entails simulation of rare but significant events. We separate the problems of measuring market risk and credit risk because different types of models are used in the two domains.
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© 2004 Springer Science+Business Media New York
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Glasserman, P. (2004). Applications in Risk Management. In: Monte Carlo Methods in Financial Engineering. Stochastic Modelling and Applied Probability, vol 53. Springer, New York, NY. https://doi.org/10.1007/978-0-387-21617-1_9
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DOI: https://doi.org/10.1007/978-0-387-21617-1_9
Publisher Name: Springer, New York, NY
Print ISBN: 978-1-4419-1822-2
Online ISBN: 978-0-387-21617-1
eBook Packages: Springer Book Archive