IDEAS home Printed from https://ideas.repec.org/a/wsi/ijtafx/v17y2014i01ns0219024914500046.html
   My bibliography  Save this article

Value-At-Risk Computations In Stochastic Volatility Models Using Second-Order Weak Approximation Schemes

Author

Listed:
  • EVA LÜTKEBOHMERT

    (Department of Financial Mathematics, Faculty of Economics and Behavioral Sciences, University of Freiburg, Platz der Alten Synagoge, 79098 Freiburg, Germany)

  • LYDIENNE MATCHIE

    (Department of Financial Mathematics, Faculty of Economics and Behavioral Sciences, University of Freiburg, Platz der Alten Synagoge, 79098 Freiburg, Germany)

Abstract

We explore the class of second-order weak approximation schemes (cubature methods) for the numerical simulation of joint default probabilities in credit portfolios where the firm's asset value processes are assumed to follow the multivariate Heston stochastic volatility model. Correlation between firms' asset processes is reflected by the dependence on a common set of underlying risk factors. In particular, we consider the Ninomiya–Victoir algorithm and we study the application of this method for the computation of value-at-risk and expected shortfall. Numerical simulations for these quantities for some exogenous portfolios demonstrate the numerical efficiency of the method.

Suggested Citation

  • Eva Lütkebohmert & Lydienne Matchie, 2014. "Value-At-Risk Computations In Stochastic Volatility Models Using Second-Order Weak Approximation Schemes," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 17(01), pages 1-26.
    • Handle: RePEc:wsi:ijtafx:v:17:y:2014:i:01:n:s0219024914500046
    DOI: 10.1142/S0219024914500046
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219024914500046
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219024914500046?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Christian Bayer & Peter Friz & Ronnie Loeffen, 2010. "Semi-Closed Form Cubature and Applications to Financial Diffusion Models," Papers 1009.4818, arXiv.org.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.

      Corrections

      All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:17:y:2014:i:01:n:s0219024914500046. See general information about how to correct material in RePEc.

      If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

      If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

      If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

      For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijtaf/ijtaf.shtml .

      Please note that corrections may take a couple of weeks to filter through the various RePEc services.

      IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.