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Title:Portfolio value at risk based on independent components analysis PDF Logo
Authors:Chen, Ying
Härdle, Wolfgang Karl
Spokoiny, Vladimir
Issue Date:2005
Series/Report no.:SFB 649 discussion paper 2005-060
Abstract:Risk management technology applied to high dimensional portfolios needs simple and fast methods for calculation of Value-at-Risk (VaR). The multivariate normal framework provides a simple off-the-shelf methodology but lacks the heavy tailed distributional properties that are observed in data. A principle component based method (tied closely to the elliptical structure of the distribution) is therefore expected to be unsatisfactory. Here we propose and analyze a technology that is based on Independent Component Analysis (ICA). We study the proposed ICVaR methodology in an extensive simulation study and apply it to a high dimensional portfolio situation. Our analysis yields very accurate VaRs.
Subjects:independent component analysis
Value-at-Risk
JEL:C14
C15
C32
C53
G20
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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