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A confidence interval procedure for expected shortfall risk measurement via two-level simulation

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<mark>Journal publication date</mark>09/2010
<mark>Journal</mark>Operations Research
Issue number5
Volume58
Number of pages10
Pages (from-to)1481-1490
Publication StatusPublished
<mark>Original language</mark>English

Abstract

We develop and evaluate a two-level simulation procedure that produces a confidence interval for expected shortfall. The outer level of simulation generates financial scenarios, whereas the inner level estimates expected loss conditional on each scenario. Our procedure uses the statistical theory of empirical likelihood to construct a confidence interval. It also uses tools from the ranking-and-selection literature to make the simulation efficient.