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A parsimonious quantile regression model to forecast day-ahead value-at-risk

Author

Listed:
  • Haugom, Erik
  • Ray, Rina
  • Ullrich, Carl J.
  • Veka, Steinar
  • Westgaard, Sjur

Abstract

This paper proposes a parsimonious quantile regression model for forecasting Value-at-Risk. The model uses only observable measures of daily, weekly, and monthly volatility as input and thus simplifies optimization substantially compared with other methods proposed in the literature. The framework also provides a new way of illustrating the volatility effects of a heterogeneous market. When subjected to formal coverage tests for out-of-sample VaR predictions, model performance is similar to more complicated models.

Suggested Citation

  • Haugom, Erik & Ray, Rina & Ullrich, Carl J. & Veka, Steinar & Westgaard, Sjur, 2016. "A parsimonious quantile regression model to forecast day-ahead value-at-risk," Finance Research Letters, Elsevier, vol. 16(C), pages 196-207.
    • Handle: RePEc:eee:finlet:v:16:y:2016:i:c:p:196-207
    DOI: 10.1016/j.frl.2015.12.006
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    2. Mehmet Balcilar & Elie Bouri & Rangan Gupta & Christian Pierdzioch, 2021. "El Niño, La Niña, and the Forecastability of the Realized Variance of Heating Oil Price Movements," Sustainability, MDPI, vol. 13(14), pages 1-23, July.
    3. Juan Ignacio Pe~na & Rosa Rodriguez & Silvia Mayoral, 2022. "Tail Risk of Electricity Futures," Papers 2202.01732, arXiv.org.
    4. Gkillas, Konstantinos & Gupta, Rangan & Pierdzioch, Christian, 2020. "Forecasting realized gold volatility: Is there a role of geopolitical risks?," Finance Research Letters, Elsevier, vol. 35(C).
    5. Lyócsa, Štefan & Todorova, Neda & Výrost, Tomáš, 2021. "Predicting risk in energy markets: Low-frequency data still matter," Applied Energy, Elsevier, vol. 282(PA).
    6. Huang, Jiefei & Xu, Yang & Song, Yuping, 2022. "A high-frequency approach to VaR measures and forecasts based on the HAR-QREG model with jumps," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 608(P1).
    7. Garcia-Jorcano, Laura & Sanchis-Marco, Lidia, 2021. "Systemic-systematic risk in financial system: A dynamic ranking based on expectiles," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 330-365.
    8. Westgaard, Sjur & Fleten, Stein-Erik & Negash, Ahlmahz & Botterud, Audun & Bogaard, Katinka & Verling, Trude Haugsvaer, 2021. "Performing price scenario analysis and stress testing using quantile regression: A case study of the Californian electricity market," Energy, Elsevier, vol. 214(C).
    9. Lyócsa, Štefan & Todorova, Neda, 2021. "What drives volatility of the U.S. oil and gas firms?," Energy Economics, Elsevier, vol. 100(C).
    10. Haugom, Erik & Ray, Rina, 2017. "Heterogeneous traders, liquidity, and volatility in crude oil futures market," Journal of Commodity Markets, Elsevier, vol. 5(C), pages 36-49.
    11. Ruchika Sehgal & Aparna Mehra, 2023. "Quantile Regression Based Enhanced Indexing with Portfolio Rebalancing," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(3), pages 721-742, September.
    12. Kao, Wei-Shun & Lin, Chu-Hsiung & Changchien, Chang-Cheng & Wu, Chien-Hui, 2017. "Return distribution, leverage effect and spot-futures spread on the hedging effectiveness," Finance Research Letters, Elsevier, vol. 22(C), pages 158-162.
    13. Zou, Yingchao & Yu, Lean & Tso, Geoffrey K.F. & He, Kaijian, 2020. "Risk forecasting in the crude oil market: A multiscale Convolutional Neural Network approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 541(C).

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    More about this item

    Keywords

    Heterogeneous investors; HAR-QREG/Quantile regression; Risk management; Value-at-risk; Volatility;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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