Methods for computing numerical standard errors: Review and application to value-at-risk estimation

David Ardia*, Keven Bluteau, Lennart F. Hoogerheide

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Numerical standard error (NSE) is an estimate of the standard deviation of a simulation result if the simulation experiment were to be repeated many times. We review standard methods for computing NSE and perform a Monte Carlo experiments to compare their performance in the case of high/extreme autocorrelation. In particular, we propose an application to risk management where we assess the precision of the value-at-risk measure when the underlying risk model is estimated by simulation-based methods. Overall, heteroscedasticity and autocorrelation estimators with prewhitening perform best in the presence of large/extreme autocorrelation.

Original languageEnglish
Article number20170011
JournalJournal of Time Series Econometrics
Volume10
Issue number2
DOIs
Publication statusPublished - 26 Jul 2018

Keywords

  • bootstrap
  • GARCH
  • HAC kernel
  • Markov chain Monte Carlo (MCMC)
  • Monte Carlo
  • numerical standard error (NSE)
  • spectral density
  • value-at-risk
  • Welch

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