Simulating Security Returns A Filtered Historical Simulation Approach

Practitioners in risk management are familiar with the use of the FHS (filtered historical simulation) to finding realistic simulations of security returns. This approach has become increasingly popular over the last fifteen years, as it is both flexible and reliable, and is now being accepted in the academic community. Simulating Security Returns is a useful guide for researchers, students, and practitioners. It uses the FHS approach to help simulate the returns of large portfolios of securities. While other simulation methods use the covariance matrix of security returns, which suffers the curse of dimensionality even for modest portfolios, Barone Adesi demonstrates how FHS can accurately adjust to current market conditions.

1. Introduction: Simulating Security Returns; Giovanni Barone Adesi 2. VaR Without Correlations for Portfolios of Derivative Securities; Giovanni Barone Adesi, Kostas Giannopoulos, Les Vosper 3. Backtesting Derivative Portfolios with FHS; Giovanni Barone Adesi, Kostas Giannopoulos, Les Vosper 4. A GARCH Option Pricing Model with Filtered Historical Simulation; Giovanni Barone Adesi, Robert F. Engle

Robert Engle, New York University, USA Kostas Giannopoulos, Neapolis University, Cyprus Loriano Mancini, École polytechnique fédérale de Lausanne, Switzerland Les Vosper, unaffiliated, UK