Simulations with Exact Means and Covariances

8 Pages Posted: 8 Jun 2009 Last revised: 11 Oct 2010

Attilio Meucci

ARPM - Advanced Risk and Portfolio Management

Date Written: June 7, 2009

Abstract

We present a simple method to generate scenarios from multivariate elliptical distributions where the sample mean and covariances match the respective population moments. This methodology easily applies to large numbers of scenarios and large-dimensional distributions. We show an application to the risk management of a book of options.

Keywords: matrix Riccati equation, antithetic variables, affine equivariance, affine transformations, copula-marginal factorization, correlation stress-testing

JEL Classification: C1, G11

Suggested Citation

Meucci, Attilio, Simulations with Exact Means and Covariances (June 7, 2009). Available at SSRN: https://ssrn.com/abstract=1415699 or http://dx.doi.org/10.2139/ssrn.1415699

Attilio Meucci (Contact Author)

ARPM - Advanced Risk and Portfolio Management ( email )

HOME PAGE: http://www.arpm.co/

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