- Under various situations in reallity, we need to estimate the conditional expectation quantaties to
access a system, yet usually . This project aims to find an effcient allocation of computational resourses to estimate this
quantity based on outer and inner level simulation.
- As an example, we consider estimating the variance of the profit and loss that a trading strategy would
produce, by simulating the strategy before actually using it. At outer level, we simulate the underling stock price, which we call
scenarios, while at inner level, we simulate the trading strategy we would use given the scenario.
- Shown in the figure to the right, the variance of our estimator has a lowest point with respect to the
number of inner-level replicates. Strikingly, it is not as big as many people originally thought. Using this efficient simulation,
we would reduce simulation time dramatically.
- Co-authored and submitted the paper “Efficient nested simulation for estimating the variance of a conditional expectation” to Operations Research. The paper was accepted by the renowned journal in Aug 2010.
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