Forecasting VaR and Expected Shortfall Using Dynamical Systems: A Risk Management Strategy
AbstractUsing non-parametric and parametric models, we show that the bivariate distribution of an Asian portfolio is not stable along all the period under study. We suggest several dynamic models to compute two market risk measures, the Value at Risk and the Expected Shortfall: the RiskMetrics methodology, the Multivariate GARCH models, the Multivariate Markov-Switching models, the empirical histogram and the dynamic copulas. We discuss the choice of the best method with respect to the policy management of bank supervisors. The copula approach seems to be a good compromise between all these models. It permits taking financial crises into account and obtaining a low capital requirement during the most important crises.
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Bibliographic InfoArticle provided by SKEMA Business School in its journal Frontiers in Finance and Economics.
Volume (Year): 6 (2009)
Issue (Month): 1 (April)
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Value at risk; expected shortfall; copulas; risk management; GARCH models; Markov switching models;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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- Dominique Guegan & Wayne Tarrant, 2011. "Viewing risk measures as information," Documents de travail du Centre d'Economie de la Sorbonne 11054, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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- Dominique Guegan & Wayne Tarrant, 2012. "Viewing Risk Measures as information," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00721350, HAL.
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- Dominique Guegan & Wayne Tarrant, 2011. "Viewing Risk Measures as information," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00639489, HAL.
- repec:hal:journl:halshs-00639489 is not listed on IDEAS
- Cyril Caillault & Dominique Guegan, 2009. "Forecasting VaR and Expected Shortfall using Dynamical Systems: A Risk Management Strategy," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00375765, HAL.
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