arXiv 20 Apr 2020 · Econometrics
arXiv:2004.09042 · PDF · DOI · OpenAlex · Extracted main text
Economic Scenario Generators (ESGs) simulate economic and financial variables forward in time for risk management and asset allocation purposes. It is often not feasible to calibrate the dynamics of all variables within the ESG to historical data alone. Calibration to forward-information such as future scenarios and return expectations is needed for stress testing and portfolio optimization, but no generally accepted methodology is available. This paper introduces the Conditional Scenario Simulator, which is a framework for consistently calibrating simulations and projections of economic and financial variables both to historical data and forward-looking information. The framework can be viewed as a multi-period, multi-factor generalization of the Black-Litterman model, and can embed a wide array of financial and macroeconomic models. Two practical examples demonstrate this in a frequentist and Bayesian setting.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Ireland, P. N (2011) A new Keynesian perspective on the great recession | 1.000 | 7 | 3 | 100% |
| 2 | Bernanke, B. S., Boivin, J., and Eliasz, P (2005) Measuring the effects of monetary policy: A factor-augmented vector autoregressive (FAVAR) approach | 1.000 | 5 | 3 | 100% |
| 3 | Anderson, G. and Moore, G (1985) A linear algebraic procedure for solving linear perfect foresight models | 0.644 | 2 | 2 | 100% |
| 4 | Fama, E. F. and French, K. R (1992) The cross-section of expected stock returns | 0.644 | 2 | 2 | 100% |
| 5 | Fama, E. F. and French, K. R (1993) Common risk factors in the returns on stocks and bonds | 0.644 | 2 | 2 | 100% |
| 6 | Nelson, C. R. and Siegel, A. F (1987) Parsimonious modeling of yield curves | 0.644 | 2 | 2 | 100% |
| 7 | Black, F. and Litterman, R (1992) Global portfolio optimization | 0.511 | 2 | 2 | 50% |
| 8 | Boivin, J. and Giannoni, M (2006) DSGE models in a data-rich environment | 0.511 | 2 | 1 | 100% |
| 9 | Cochrane, J. H (2011) Presidential address: Discount rates | 0.511 | 2 | 1 | 100% |
| 10 | Golub, B., Greenberg, D., and Ratcliffe, R (2018) Market-driven scenarios: An approach for plausible scenario construction | 0.511 | 2 | 1 | 100% |
Showing the top 10 of 63 scored citations.