Explain how portfolio’s value for realization calculated

Question

Explain how portfolio’s value for realization calculated? Give an example.

Answer 1

The simulations can be rather straightforward, albeit quite time consuming. Simulate several realizations of all of the underlying up to the time horizon using typical Monte Carlo methods. For each realization compute the portfolio’s value. It will provide you a distribution of portfolio values at the time horizon. Here look at where the tail of the distribution begins, the left-hand 5 percent tail if you need 95% confidence, or the 1% tail when you are working to 99%.