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Risk Measurement for Large Diversified Nonlinear Portfolios

Funding: 2001: $88,700
2002: $74,200
2003: $77,100

Funding or Partner Organisation: CCK Financial Solutions (CCK Financial Solutions Partner Funds)
Australian Research Council (ARC SPIRT (Strategic Partnerships with Industry Re)

Start year: 2001

Summary: The measurement of risk for large nonlinear portfolios, consisting of basic assets and derivatives, will play a key role in future financial technology. Based on a new characterisation of asymptotic portfolios this project proposes the development, implementation and testing of highly efficient new risk measurement methodologies suitable for portfolios with hundreds or thousands of instruments. Comparisons with standard and new simulation methods will demonstrate their superiority. The outcomes of this project will give Australian industry an internationally competitive advantage in the measurement and management of risk for large diversified nonlinear portfolios as superannuation funds or portfolios of banks.

Keywords: Risk measurement; Simulation; Large portfolios; Value at risk; Stochastic differential equations; Derivatives

FOR Codes: Finance, Stochastic Analysis and Modelling, Finance and investment services