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A simple method for time scaling value-at-risk: Let the data speak for themselves

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  • Hamidieh, Kamal
  • Ensor, Katherine Bennett

Abstract

New empirical and data-based scaling factors are introduced to scale the 1-day value-at-risk (VaR) to 5- and 10-day VaR. The method relies on the estimation of the ratio of the high quantiles of the aggregated data to the daily data. Using real data sets, the new scaling factors are compared with the commonly used benchmark of square-root-of-time scaling, and a more complex simulation-based estimation method. The results indicate that the empirical scaling factors outperform against the square-root-of-time scaling and are competitive with the simulation-based method.

Suggested Citation

  • Hamidieh, Kamal & Ensor, Katherine Bennett, 2010. "A simple method for time scaling value-at-risk: Let the data speak for themselves," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 3(4), pages 380-391, September.
    • Handle: RePEc:aza:rmfi00:y:2010:v:3:i:4:p:380-391
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    More about this item

    Keywords

    value-at-risk; square-root-of-time scaling; extreme quantiles; data aggregation;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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