@inproceedings{3e0d9f1f91864c5a8e926fc4c4767022,

title = "Response surface Methodology for Simulating Hedging and Trading Strategies",

abstract = "Suppose that one wishes to evaluate the distribution of profit and loss (P&L) resulting from a dynamic trading strategy. A straightforward method is to simulate thousands of paths (i.e.-time series) of relevant financial variables and to track the resulting P&L at every time at which the trading strategy rebalances its portfolio. In many cases-this requires numerical computation of portfolio weights at every rebalancing time on every path-for example-by a nested simulation performed conditional on market conditions at that time on that path. Such a two-level simulation could involve many millions of simulations to compute portfolio weights-and thus be too computationally expensive to attain high accuracy. We show that response surface methodology enables a more efficient simulation procedure: in particular-it is possible to do far fewer simulations by using kriging to model portfolio weights as a function of underlying financial variables.",

author = "Baysal, {R. Evren} and Nelson, {Barry L.} and Jeremy Staum",

year = "2008",

doi = "10.1109/WSC.2008.4736123",

language = "English (US)",

isbn = "9781424427086",

series = "Proceedings - Winter Simulation Conference",

pages = "629--637",

booktitle = "Proceedings of the 2008 Winter Simulation Conference, WSC 2008",

note = "2008 Winter Simulation Conference, WSC 2008 ; Conference date: 07-12-2008 Through 10-12-2008",

}