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arXiv · 2202.07148

Estimating risks of option books using neural-SDE market models

Samuel N. Cohen·Christoph Reisinger·Sheng Wang
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Abstract

In this paper, we examine the capacity of an arbitrage-free neural-SDE market model to produce realistic scenarios for the joint dynamics of multiple European options on a single underlying. We subsequently demonstrate its use as a risk simulation engine for option portfolios. Through backtesting analysis, we show that our models are more computationally efficient and accurate for evaluating the Value-at-Risk (VaR) of option portfolios, with better coverage performance and less procyclicality than standard filtered historical simulation approaches.

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BibTeXRIS

Samuel N. Cohen, Christoph Reisinger, Sheng Wang. 2022-02-15. Estimating risks of option books using neural-SDE market models. https://arxiv.org/abs/2202.07148

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