Period value at risk and its estimation by Monte Carlo simulation

ABSTRACT

Most risk indicators for an investment show the risk at a certain future time; they cannot reflect the risk over a time period, which may be more important than the risk at a certain time. We proposed Period Value at Risk (PVaR) for measuring market risk over a period of time, and a historical simulation method to estimate the PVaR of an investment. This paper suggests a method which uses Monte Carlo simulation to estimate PVaR. We can calculate the estimation error with this method, and determine the least number of simulations for getting a qualified estimation.

KEYWORDS:

• Financial market risk
• risk measure
• value at risk
• Monte Carlo simulation

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the JSPS [19K01757,19K04913]; Zhejiang Provincial Natural Science Foundation of China [LQ18G010004]; Qianjiang Talent Plan of Zhejiang Province of China [QJC1502008].