Applications of Simulation-Based Methods in Finance: The Use of ModelRisk Software
AbstractThis paper has two parts. The first part considers the statistical arbitrage detection using the simulation-based approaches. The statistical arbitrage is the opportunity of attaining gain at future with a high probability with zero investment at the current time. Simulated methods relies on the direct use of three famous theorems in the field of stochastic process, namely (i) the arc-sine laws, (ii) the first passage of time, and (iii) optional sampling theorem. It is very important for investors to use the simulated approaches by user-friendly software like the ModelRisk of Excel which is done in this note. In the second part, the conditional NPVaR (CNPVaR) of a cash flow stream in the presence of exchange rate risk. The distribution of risk factors are assumed to be a specified location-scale distribution. The application of dynamic programming and quadratic programming are studied.
 Bondarenko, O. 2003. Statistical Arbitrage and Securities Prices. Review of Financial Studies, 16: 875–919.
 Calin, O. 2012. An introduction to stochastic calculus with applications. On-line lecture notes.
 Rockafellar, R. T., and Uryasev, S. 2000. Optimization of conditional value-at-risk. Journal of Risk, 3: 21-41.
 Sarykalin, S., Serraino, G., and Uryasev, S. 2008. Value-at-risk vs. conditional value-at-risk in risk management and optimization. Tutorials in Operations Research. C @ Informs: 270-298.
 Vose, D. 2010. Risk analysis: a quantitative guide. Wiley.
 Wang, X. Q., and Gao, B. 2012. Dynamic measurement and evaluation on foreign exchange risks of international construction projects. Proceedings of the 2012 IEEE IEEM. USA.
 Ye, S., and Tiong, R. L. K. 2000. Npv-at-risk method in infrastructure project investment evaluation. Journal of Construction Engineering and Management, 3: 227-233.
The Copyright Transfer Form to ASERS Publishing (The Publisher)
This form refers to the manuscript, which an author(s) was accepted for publication and was signed by all the authors.
The undersigned Author(s) of the above-mentioned Paper here transfer any and all copyright-rights in and to The Paper to The Publisher. The Author(s) warrants that The Paper is based on their original work and that the undersigned has the power and authority to make and execute this assignment. It is the author's responsibility to obtain written permission to quote material that has been previously published in any form. The Publisher recognizes the retained rights noted below and grants to the above authors and employers for whom the work performed royalty-free permission to reuse their materials below. Authors may reuse all or portions of the above Paper in other works, excepting the publication of the paper in the same form. Authors may reproduce or authorize others to reproduce the above Paper for the Author's personal use or for internal company use, provided that the source and The Publisher copyright notice are mentioned, that the copies are not used in any way that implies The Publisher endorsement of a product or service of an employer, and that the copies are not offered for sale as such. Authors are permitted to grant third party requests for reprinting, republishing or other types of reuse. The Authors may make limited distribution of all or portions of the above Paper prior to publication if they inform The Publisher of the nature and extent of such limited distribution prior there to. Authors retain all proprietary rights in any process, procedure, or article of manufacture described in The Paper. This agreement becomes null and void if and only if the above paper is not accepted and published by The Publisher, or is with drawn by the author(s) before acceptance by the Publisher.