Søren Asmussen & Jens Ledet Jensen

(Department of Mathematics, Aarhus University)

(Department of Mathematics, Aarhus University)

Thiele Seminar

Thursday, 9 October, 2014, at 14:15-15:00, in Koll. G3 (1532-218)

Abstract:

Sums S_n=X_1+...+X_n of lognormals arises in a wide variety of disciplines such as engineering, economics, insurance or finance, and are often employed in modeling across the sciences. The right lognormal tail P(S_n>y) is heavy-tailed and typically analyzed by subexponential techniques.

The left tail P(S_n<z) is of interest for example in portfolio VaR valculations .

The typical tool would be applying saddlepoint or large deviations techniques. This faces, however, the problem that the Laplace transform L(\theta)=Ee^{-\theta X} is not explicit.

We present an approximation for L(\theta) in terms of the Lambert W function.

This is used to describe the shape of the exponentially tilted distribution \tilde P(X\in dx)=e^{-\theta x}P(X\in dx)/L(\theta) and to derive a saddlepoint type approximation for P(S_n<z).

Also related importance sampling algorithms are presented.

Numerical examples are presented in a range of parameters that we consider realistic for portfolio VaR calculations.

Organised by: The T.N. Thiele Centre

Contact person: Søren Asmussen