Reducing Variation of Risk Estimation by Using Importance Sampling


Çoban H., Deveci Kocakoç İ., Erken Ş., Aksoy M. A.

Alphanumeric Journal, vol.7, no.2, pp.173-184, 2019 (Peer-Reviewed Journal)

  • Publication Type: Article / Article
  • Volume: 7 Issue: 2
  • Publication Date: 2019
  • Doi Number: 10.17093/alphanumeric.605584
  • Journal Name: Alphanumeric Journal
  • Journal Indexes: EconLit, TR DİZİN (ULAKBİM), Index Copernicus, Asos İndeks, Sobiad Atıf Dizini
  • Page Numbers: pp.173-184
  • Dokuz Eylül University Affiliated: Yes

Abstract

In today's world, risk measurement and risk management are of great importance for various economic reasons. Especially in the crisis periods, the tail risk becomes very important in risk estimation. Many methods have been developed for accurate measurement of risk. The easiest of these methods is the Value at Risk (VaR) method. However, standard VaR methods are not very effective in tail risks. This study aims to demonstrate the usage of delta normal method, historical simulation method, Monte Carlo simulation, and importance sampling to calculate the value at risk and to show which method is more effective by applying them to the S&P index between 1993 and 2003.