Saddlepoint methods for conditional expectations with applications to risk management

The paper derives saddlepoint expansions for conditional expectations in the form of E[(X) over bar vertical bar(Y) over bar = a] and E[(X) over bar vertical bar(Y) over bar >= a] for the sample mean of a continuous random vector (X, Y-T) whose joint moment generating function is available. Theses conditional expectations frequently appear in various applications, particularly in quantitative finance and risk management. Using the newly developed saddlepoint expansions, we propose fast and accurate methods to compute the sensitivities of risk measures such as value-at-risk and conditional value-at-risk, and the sensitivities of financial options with respect to a market parameter. Numerical studies are provided for the accuracy verification of the new approximations.
Publisher
INT STATISTICAL INST
Issue Date
2017-08
Language
English
Keywords

TAIL PROBABILITY APPROXIMATIONS; RANDOM-VARIABLES; SENSITIVITIES; DISTRIBUTIONS; BOOTSTRAP; INFERENCE

Citation

BERNOULLI, v.23, no.3, pp.1481 - 1517

ISSN
1350-7265
DOI
10.3150/15-BEJ774
URI
http://hdl.handle.net/10203/223583
Appears in Collection
IE-Journal Papers(저널논문)
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