Fast and accurate computation of the distribution of sums of dependent log-normals
| Autor: | Zdravko I. Botev, Daniel MacKinlay, Robert Salomone |
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| Rok vydání: | 2019 |
| Předmět: |
Cumulative distribution function
Monte Carlo method General Decision Sciences Estimator 020206 networking & telecommunications Probability density function 02 engineering and technology Management Science and Operations Research 01 natural sciences 010104 statistics & probability Statistics Log-normal distribution 0202 electrical engineering electronic engineering information engineering Large deviations theory Quasi-Monte Carlo method 0101 mathematics Random variable Mathematics |
| Zdroj: | Annals of Operations Research. 280:19-46 |
| ISSN: | 1572-9338 0254-5330 |
| Popis: | We present a new Monte Carlo methodology for the accurate estimation of the distribution of the sum of dependent log-normal random variables. The methodology delivers statistically unbiased estimators for three distributional quantities of significant interest in finance and risk management: the left tail, or cumulative distribution function; the probability density function; and the right tail, or complementary distribution function of the sum of dependent log-normal factors. For the right tail our methodology delivers a fast and accurate estimator in settings for which existing methodology delivers estimators with large variance that tend to underestimate the true quantity of interest. We provide insight into the computational challenges using theory and numerical experiments, and explain their much wider implications for Monte Carlo statistical estimators of rare-event probabilities. In particular, we find that theoretically strongly efficient estimators should be used with great caution in practice, because they may yield inaccurate results in the prelimit. Further, this inaccuracy may not be detectable from the output of the Monte Carlo simulation, because the simulation output may severely underestimate the true variance of the estimator. |
| Databáze: | OpenAIRE |
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