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Interpreting Value at Risk (VaR) forecasts

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  • Gregory, Allan W.
  • Reeves, Jonathan J.

Abstract

Value at Risk (VaR) forecasts have been increasingly accepted globally by both risk managers and regulators as a tool to identify and control exposure to financial market risk. However, modern portfolios are characterized by a constantly changing composition of security holdings that reflect portfolio managers' strategies, expected prices, and net cash flows into the portfolio. As a result of these factors, portfolio returns are time-varying mixtures of distributions which are unlikely to be well approximated by conventional methods.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 32 (2008)
Issue (Month): 2 (June)
Pages: 167-176

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Handle: RePEc:eee:ecosys:v:32:y:2008:i:2:p:167-176

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  1. Berger, Allen N. & Herring, Richard J. & Szego, Giorgio P., 1995. "The role of capital in financial institutions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 19(3-4), pages 393-430, June.
  2. Consigli, Giorgio, 2002. "Tail estimation and mean-VaR portfolio selection in markets subject to financial instability," Journal of Banking & Finance, Elsevier, Elsevier, vol. 26(7), pages 1355-1382, July.
  3. Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
  4. Engle, Robert F & Manganelli, Simone, 1999. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt06m3d6nv, Department of Economics, UC San Diego.
  5. M.J.B. Hall, 1996. "The amendment to the capital accord to incorporate market risk," BNL Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 49(197), pages 271-277.
  6. Peter F. Christoffersen & Francis X. Diebold & Til Schuermann, 1998. "Horizon Problems and Extreme Events in Financial Risk Management," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 98-16, Wharton School Center for Financial Institutions, University of Pennsylvania.
  7. Bradley, Michael G. & Wambeke, Carol A. & Whidbee, David A., 1991. "Risk weights, risk-based capital and deposit insurance," Journal of Banking & Finance, Elsevier, Elsevier, vol. 15(4-5), pages 875-893, September.
  8. Jeremy Berkowitz & James O'Brien, 2002. "How Accurate Are Value-at-Risk Models at Commercial Banks?," Journal of Finance, American Finance Association, American Finance Association, vol. 57(3), pages 1093-1111, 06.
  9. Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, Elsevier, vol. 3(1), pages 15-102, May.
  10. Jon Danielsson, 2000. "The Emperor has no Clothes: Limits to Risk Modelling," FMG Special Papers, Financial Markets Group sp126, Financial Markets Group.
  11. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-24, Board of Governors of the Federal Reserve System (U.S.).
  12. M.J.B. Hall, 1996. "The amendment to the capital accord to incorporate market risk," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 49(197), pages 271-277.
  13. Darryll Hendricks, 1996. "Evaluation of value-at-risk models using historical data," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Apr, pages 39-69.
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Cited by:
  1. Rausser, Gordon C. & Balson, William & Stevens, Reid, 2009. "Centralized Clearing for Over-the-Counter Derivatives," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series, Department of Agricultural & Resource Economics, UC Berkeley qt494976mk, Department of Agricultural & Resource Economics, UC Berkeley.

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