Quotation Sak, Halis, Hörmann, Wolfgang, Leydold, Josef. 2010. Better Confidence Intervals for Importance Sampling. International Journal of Theoretical and Applied Finance 13 (8): 1279-1291.


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Abstract

It is well known that for highly skewed distributions the standard method of using the t statistic for the confidence interval of the mean does not give robust results. This is an important problem for importance sampling (IS) as its final distribution is often skewed due to a heavy tailed weight distribution. In this paper, we first explain Hall's transformation and its variants to correct the confidence interval of the mean and then evaluate the performance of these methods for two numerical examples from finance which have closed-form solutions. Finally, we assess the performance of these methods for credit risk examples. Our numerical results suggest that Hall's transformation or one of its variants can be safely used in correcting the two-sided confidence intervals of financial simulations.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal International Journal of Theoretical and Applied Finance
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-B, WH-B
Language English
Title Better Confidence Intervals for Importance Sampling
Volume 13
Number 8
Year 2010
Page from 1279
Page to 1291
Reviewed? Y

Associations

People
Leydold, Josef (Details)
External
Hörmann, Wolfgang (Turkey)
Sak, Halis
Organization
Institute for Statistics and Mathematics IN (Details)
Research Institute for Computational Methods FI (Details)
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