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Tail-GAN: Learning to Simulate Tail Risk Scenarios

Risk Management 2025-05-19 v4

Abstract

The estimation of loss distributions for dynamic portfolios requires the simulation of scenarios representing realistic joint dynamics of their components. We propose a novel data-driven approach for simulating realistic, high-dimensional multi-asset scenarios, focusing on accurately representing tail risk for a class of static and dynamic trading strategies. We exploit the joint elicitability property of Value-at-Risk (VaR) and Expected Shortfall (ES) to design a Generative Adversarial Network (GAN) that learns to simulate price scenarios preserving these tail risk features. We demonstrate the performance of our algorithm on synthetic and market data sets through detailed numerical experiments. In contrast to previously proposed data-driven scenario generators, our proposed method correctly captures tail risk for a broad class of trading strategies and demonstrates strong generalization capabilities. In addition, combining our method with principal component analysis of the input data enhances its scalability to large-dimensional multi-asset time series, setting our framework apart from the univariate settings commonly considered in the literature.

Keywords

Cite

@article{arxiv.2203.01664,
  title  = {Tail-GAN: Learning to Simulate Tail Risk Scenarios},
  author = {Rama Cont and Mihai Cucuringu and Renyuan Xu and Chao Zhang},
  journal= {arXiv preprint arXiv:2203.01664},
  year   = {2025}
}

Comments

Updated version for publication in Management Science

R2 v1 2026-06-24T10:00:40.996Z