Advanced Search
MyIDEAS: Login

Value at Risk (VaR) Using Volatility Forecasting Models: EWMA, GARCH and Stochastic Volatility

Contents:

Author Info

  • Fernando Caio Galdi

    (University of São Paulo)

  • Leonel Molero Pereira

    (University of São Paulo)

Registered author(s):

    Abstract

    This paper explores three models to estimate volatility: exponential weighted moving average (EWMA), generalized autoregressive conditional heteroskedasticity (GARCH) and stochastic volatility (SV). The volatility estimated by these models can be used to measure the market risk of a portfolio of assets, called Value at Risk (VaR). VaR depends on the volatility, time horizon and confidence interval for the continuous returns under analysis. For empirical assessment of these models, we used a sample based on Petrobras stock prices to specify the GARCH and SV models. Additionally, we adjusted these models by violation backtesting for one-day VaR, to compare the efficiency of the SV, GARCH and EWMA volatility models (suggested by RiskMetrics). The results suggest that VaR calculated considering EWMA was less violated than when considering SV and GARCH for a 1500-observation window. Hence, for our sample, the model suggested by RiskMetrics (1999), which uses exponential smoothing and is easier to implement, did not produce inferior violation test results when compared to more sophisticated tests such as SV and GARCH.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.bbronline.com.br/public/edicoes/4_1/artigos/mvg2vhm6xx30112010143559.pdf
    File Function: Full text
    Download Restriction: no

    Bibliographic Info

    Article provided by Fucape Business School in its journal Brazilian Business Review.

    Volume (Year): 4 (2007)
    Issue (Month): 1 (January)
    Pages: 74-94

    as in new window
    Handle: RePEc:bbz:fcpbbr:v:4:y:2007:i:1:p:74-94

    Contact details of provider:
    Postal: Fucape Business School Brazilian Business Review Av. Fernando Ferrari, 1358, Boa Vista CEP 29075-505 Vitória-ES
    Phone: +55 27 4009-4408
    Fax: +55 27 4009-4422
    Web page: http://www.bbronline.com.br/
    More information through EDIRC

    Related research

    Keywords: VaR; Stochastic Volatility; GARCH; EWMA;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Bogdan ZUGRAVU & Dumitru Cristian OANEA & Victoria Gabriela ANGHELACHE, 2013. "Analysis Based on the Risk Metrics Model," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 61(2), pages 145-154, May.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bbz:fcpbbr:v:4:y:2007:i:1:p:74-94. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Adriana Gasparino).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.