research-article

A confidence interval for tail conditional expectation via two-level simulation

Authors:

Hai Lan,

Barry L. Nelson,

Jeremy StaumAuthors Info & Claims

WSC '07: Proceedings of the 39th conference on Winter simulation: 40 years! The best is yet to come

Pages 949 - 957

Published: 09 December 2007 Publication History

Get Access

Abstract

We develop and evaluate a two-level simulation procedure that produces a confidence interval for tail conditional expectation, otherwise known as conditional tail expectation. This risk measure is closely related to conditional value-at-risk, expected shortfall, and worst conditional expectation. The outer level of simulation generates risk factors and the inner level estimates each expected loss conditional on the risk factor. Our procedure uses the statistical theory of empirical likelihood to construct a confidence interval, and it uses tools from the ranking-and-selection literature to make the simulation efficient.

References

[1]

Baysal, R. E., and J. Staum. 2007. Empirical likelihood for value at risk and expected shortfall. Working Paper 07--01, Dept. of Industrial Engineering and Management Sciences, Northwestern University.

Google Scholar

[2]

Bazaraa, M. S., H. D. Sherali, and C. M. Shetty. 2005. Nonlinear Progarmming: Theory and Algorithms, 3rd. ed. New York: John Wiley & Sons.

Google Scholar

[3]

Björk, T. 1998. Arbitrage Theory in Continuous Time. New York: Oxford University Press.

Google Scholar

[4]

Lan, H., B. L. Nelson, and J. Staum. 2007. Two-level simulations for risk management. In Proceedings of the 2007 INFORMS Simulation Society Research Workshop, ed. S. Chick, C.-H. Chen, S. Henderson, and E. Yücesan, 102--107.

Google Scholar

[5]

Lee, S.-H. 1998. Monte Carlo computation of conditional expectation quantiles. Dissertation, Dept. of Operations Research, Stanford University.

Digital Library

Google Scholar

[6]

Lesnevski, V., B. L. Nelson, and J. Staum. 2006. An adaptive procedure for estimating coherent risk measures based on generalized scenarios. Working Paper 06--05, Dept. of Industrial Engineering and Management Sciences, Northwestern University.

Google Scholar

[7]

Manistre, B. J., and G. H. Hancock. 2005. Variance of the CTE estimator. North American Actuarial Journal 9: 129--154.

Crossref

Google Scholar

[8]

Owen, A. B. 2001. Empirical Likelihood. New York: Chapman & Hall/CRC.

Google Scholar

Cited By

View all

Liu MNelson BStaum JYücesan E(2010)An efficient simulation procedure for point estimation of expected shortfallProceedings of the Winter Simulation Conference10.5555/2433508.2433858(2821-2831)Online publication date: 5-Dec-2010
https://dl.acm.org/doi/10.5555/2433508.2433858
Juneja SRamprasath LDunkin AIngalls R(2009)Nested simulation for estimating portfolio losses within a time horizonWinter Simulation Conference10.5555/1995456.1995526(434-443)Online publication date: 13-Dec-2009
https://dl.acm.org/doi/10.5555/1995456.1995526

Recommendations

A Confidence Interval Procedure for Expected Shortfall Risk Measurement via Two-Level Simulation

We develop and evaluate a two-level simulation procedure that produces a confidence interval for expected shortfall. The outer level of simulation generates financial scenarios, whereas the inner level estimates expected loss conditional on each ...
Conditional Tail Expectation Decomposition and Conditional Mean Risk Sharing for Dependent and Conditionally Independent Losses
Abstract
Conditional tail expectations are often used in risk measurement and capital allocation. Conditional mean risk sharing appears to be effective in collaborative insurance, to distribute total losses among participants. This paper develops ...
Strength of tail dependence based on conditional tail expectation

We use the conditional distribution and conditional expectation of one random variable given the other one being large to capture the strength of dependence in the tails of a bivariate random vector. We study the tail behavior of the boundary ...

Comments

Please enable JavaScript to view thecomments powered by Disqus.

Information & Contributors

Information

Published In

WSC '07: Proceedings of the 39th conference on Winter simulation: 40 years! The best is yet to come

December 2007

2659 pages

ISBN:1424413060

General Chair:
Jeff Tew

Publisher

IEEE Press

Publication History

Published: 09 December 2007

Check for updates

Qualifiers

Research-article

Conference

WSC07

Sponsor:

IIE
INFORMS-SIM
ASA
IEEE/SMC
SIGSIM
NIST
(SCS)

WSC07: Winter Simulation Conference

December 9 - 12, 2007

Washington D.C.

Acceptance Rates

WSC '07 Paper Acceptance Rate 152 of 244 submissions, 62%;

Overall Acceptance Rate 3,413 of 5,075 submissions, 67%

Other Metrics

View Article Metrics

Bibliometrics & Citations

Bibliometrics

Article Metrics

2
Total Citations
View Citations
186
Total Downloads

Downloads (Last 12 months)2
Downloads (Last 6 weeks)0

Reflects downloads up to 23 Sep 2024

Other Metrics

View Author Metrics

Citations

Cited By

View all

Liu MNelson BStaum JYücesan E(2010)An efficient simulation procedure for point estimation of expected shortfallProceedings of the Winter Simulation Conference10.5555/2433508.2433858(2821-2831)Online publication date: 5-Dec-2010
https://dl.acm.org/doi/10.5555/2433508.2433858
Juneja SRamprasath LDunkin AIngalls R(2009)Nested simulation for estimating portfolio losses within a time horizonWinter Simulation Conference10.5555/1995456.1995526(434-443)Online publication date: 13-Dec-2009
https://dl.acm.org/doi/10.5555/1995456.1995526

View Options

Get Access

Login options

Check if you have access through your login credentials or your institution to get full access on this article.

Cited By

Recommendations

A Confidence Interval Procedure for Expected Shortfall Risk Measurement via Two-Level Simulation

Conditional Tail Expectation Decomposition and Conditional Mean Risk Sharing for Dependent and Conditionally Independent Losses

Strength of tail dependence based on conditional tail expectation