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| == Monte Carlo methods in VaR analysis ==
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| In Value at Risk analysis, an alternative method for calculating the probability distribution (rather than using the Delta-normal method or the Historical simulation method).
| | ''Pensions.'' |
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| Monte Carlo simulations consist of two steps:
| | A pension arrangement under which benefits are paid out of revenues and no funding is set aside to meet future liabilities. |
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| :First, a stochastic (random) process for financial variables is specified as well as process parameters.
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| :Both historical data and appropriate judgement can be used for such parameters as risk and correlations.
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| | | Any other arrangement in which payments are made from time to time. |
| :Second, multiple fictitious price paths are simulated for all variables of interest. At each horizon considered, the portfolio is marked-to-market using full valuation.
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| :A distribution of returns is eventually produced, from which a VaR figure can be measured.
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| == Monte Carlo methods in other applications ==
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| More generally, Monte Carlo methods are the simulation of multiple fictitious outcomes, using a combination of historical and judgemental parameters and a randomised process.
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| The name originated from the famous Monte Carlo casino.
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| == See also == | | == See also == |
| * [[Stochastic]] | | * [[Unfunded scheme]] |
| * [[Value at risk]]
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| [[Category:Risk_frameworks]]
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Revision as of 14:02, 21 August 2013
(PAYG).
1.
Pensions.
A pension arrangement under which benefits are paid out of revenues and no funding is set aside to meet future liabilities.
2.
Any other arrangement in which payments are made from time to time.
See also
