Transcription of Filtering Historical Simulation. Backtest Analysis
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Filtering Historical Simulation. Backtest Analysis
Filtered Historical Simulation1 Filtering Historical simulation . Backtest Analysis1By Giovanni Barone-Adesi, Kostas Giannopoulos and Les VosperMarch 2000A new generation of VaR models, based on Historical simulation (boot-strapping), is being increasingly used in the risk management indus-try. It consists of generating scenarios, based on Historical pricechanges, for all the variables in the portfolio. Since the estimatedVaR is based on the empirical distribution of asset returns it re-flects a more realistic picture of the portfolio s risk. Unfortu-nately this methodology has a number of disadvantages. To overcomesome of them Barone-Adesi, Bourgoin and Giannopoulos(1998) and Bar-one-Adesi, Giannopoulos and Vosper (1999) introduce filtered histori-cal simulation (FHS hereafter).
Filtered Historical Simulation 3 1 Overview of VaR models. VaR models play a core role in the risk management of today’s financial institutions.
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