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Better Confidence Intervals for Importance Sampling

Sak, Halis and Hörmann, Wolfgang and Leydold, Josef (2010) Better Confidence Intervals for Importance Sampling. Research Report Series / Department of Statistics and Mathematics, 106. WU Vienna University of Economics and Business, Vienna.

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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.(author's abstract)

Item Type: Paper
Additional Information: Electronic version of an article published as International Journal of Theoretical and Applied Finance (IJTAF) Vol. 13, No. 8 (2010) pp. 1279-1291, DOI: 10.1142/S0219024910006200. (c) World Scientific Publishing Company
Keywords: confidence intervals / skewness removal / Hall's transformation / importance sampling / quantitative risk management
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Version of the Document: Published
Variance from Published Version: Typographical
Depositing User: Josef Leydold
Date Deposited: 07 Mar 2011 11:41
Last Modified: 20 Aug 2018 16:11
FIDES Link: https://bach.wu.ac.at/d/research/results/53626/
URI: http://epub.wu.ac.at/id/eprint/3017


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