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Factor Model Monte Carlo

Posted: Wed Jan 30, 2013 4:59 pm
by mpt
Hi Carol,

Do you have any views on the use of Factor Models with Monte Carlo? Thanks

Re: Factor Model Monte Carlo

Posted: Sat Feb 02, 2013 1:19 pm
by coalexander

Yes, they are a good way to reduce dimensions when large dimensions is an issue which slows down Monte Carlo. However, many people forget to respect the assumptions of the Factor Model when they do simulations (e.g. they use PCA which is based on correlations, but then use copulas for simulations)

Cheers, Carol