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Generating VaR scenarios with product beta distributions

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  • Dietmar Pfeifer
  • Olena Ragulina

Abstract

We propose a Monte Carlo simulation method to generate stress tests by VaR scenarios under Solvency II for dependent risks on the basis of observed data. This is of particular interest for the construction of Internal Models and requirements on evaluation processes formulated in the Commission Delegated Regulation. The approach is based on former work on partition-ofunity copulas, however with a direct scenario estimation of the joint density by product beta distributions after a suitable transformation of the original data.

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  • Dietmar Pfeifer & Olena Ragulina, 2018. "Generating VaR scenarios with product beta distributions," Papers 1808.02457, arXiv.org, revised Jan 2019.
    • Handle: RePEc:arx:papers:1808.02457
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    1. Scott, David W., 2004. "Multivariate Density Estimation and Visualization," Papers 2004,16, Humboldt University of Berlin, Center for Applied Statistics and Economics (CASE).
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