Abstract
We propose filtering historical simulation by GARCH processes to model the future distribution of assets and swap values. The price changes of options are computed by full re-evaluation on the changing prices of underlying assets. Our methodology implicitly takes into account the correlations of assets without restricting their values over time or computing them explicitly. VaR values for portfolios of derivative securities are obtained without linearizing them. Historical simulation assigns equal probability to past returns, neglecting current market conditions. Our methodology is a refinement of historical simulation.
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© 2014 Giovanni Barone Adesi
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Adesi, G.B., Giannopoulos, K., Vosper, L. (2014). VaR without Correlations for Portfolios of Derivative Securities. In: Adesi, G.B. (eds) Simulating Security Returns: A Filtered Historical Simulation Approach. Palgrave Pivot, New York. https://doi.org/10.1057/9781137465559_2
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DOI: https://doi.org/10.1057/9781137465559_2
Publisher Name: Palgrave Pivot, New York
Print ISBN: 978-1-349-49957-1
Online ISBN: 978-1-137-46555-9
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)