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Backtesting Derivative Portfolios with FHS

In: Simulating Security Returns: A Filtered Historical Simulation Approach

Author

Listed:
  • Giovanni Barone Adesi
  • Kostas Giannopoulos
  • Les Vosper

Abstract

Filtered historical simulation provides the general framework to our backtests of portfolios of derivative securities held by a large sample of financial institutions. We allow for stochastic volatility and exchange rates. Correlations are maintained implicitly by our simulation procedure. Options are re-priced at each node. Overall results support the adequacy of our framework, but our VaR numbers are too high for swap portfolios at long horizons and too low for options and futures portfolios at short horizons.

Suggested Citation

  • Giovanni Barone Adesi & Kostas Giannopoulos & Les Vosper, 2014. "Backtesting Derivative Portfolios with FHS," Palgrave Macmillan Books, in: Giovanni Barone Adesi (ed.), Simulating Security Returns: A Filtered Historical Simulation Approach, chapter 3, pages 30-65, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-46555-9_3
    DOI: 10.1057/9781137465559_3
    as

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