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A New Semiparametric Mirrored Historical Simulation Value-At-Risk Model

Author

Listed:
  • Nikola RADIVOJEVIĆ

    (Technical College at applied studies, Kragujevac, Kosovska 8, 34000 Kragujevac, Serbia.)

  • Luka FILIPOVI

    (EuroAudit, Enterprise for Audit, Accounting and Financial Consulting, Despota Stefana 12, 11000 Belgrade, Serbia.)

  • Тomislav D. BRZAKOVIĆ

    (University Business Academy in Novi Sad, Faculty of Applied Management, Economics and Finance in Belgrade, Serbia.)

Abstract

In this paper, the authors have developed and presented a new semiparametric value-atrisk (VaR) model for the assessment of market risk. The model is based on the theoretical foundation of the Historical Simulation (HS) method. The basic intention was to develop a new model that would be easy to implement and able to envelop the empirical features of returns, such as leptokurtosis, asymmetry, autocorrelation, and heteroscedasticity, and also to improve risk estimation in the tail distribution for the sample size and the confidence level prescribed by the Basel III standard. To obtain the answers to the question of whether the new model is an improvement against the popular improvements of the HS method, its performances were tested in terms of adherence to the backtesting rules of the Basel Accord and also compared with the backtesting results of the popular improvements of the HS method. The backtesting results justify the expectations of the new model.

Suggested Citation

  • Nikola RADIVOJEVIĆ & Luka FILIPOVI & Тomislav D. BRZAKOVIĆ, 2020. "A New Semiparametric Mirrored Historical Simulation Value-At-Risk Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 5-21, March.
    • Handle: RePEc:rjr:romjef:v::y:2020:i:1:p:5-21
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    risk estimation; emerging markets; conditional value-at-risk; Basel III standard; Berkowitz test; bootstrap method;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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