Advanced Search
MyIDEAS: Login to save this paper or follow this series

Hybrid Historical Simulation VaR and ES: Performance in Developed and Emerging Markets

Contents:

Author Info

  • Sasa Zikovic
  • Randall Filer

Abstract

We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 financial crisis. In addition to widely used VaR and ES models, we also study the behavior of conditional and unconditional extreme value (EV) models to generate 99 percent confidence level estimates as well as developing a new loss function that relates tail losses to ES forecasts. Backtesting results show that only our proposed new hybrid and Extreme Value (EV)-based VaR models provide adequate protection in both developed and emerging markets, but that the hybrid approach does this at a significantly lower cost in capital reserves. In ES estimation the hybrid model yields the smallest error statistics surpassing even the EV models, especially in the developed markets.

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.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-10/cesifo1_wp2820.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2820.

as in new window
Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:ces:ceswps:_2820

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Email:
Web page: http://www.cesifo.de
More information through EDIRC

Related research

Keywords: value at risk; expected shortfall; hybrid historical simulation; extreme value theory; bootstrapping;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Song Xi Chen, 2008. "Nonparametric Estimation of Expected Shortfall," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 6(1), pages 87-107, Winter.
  2. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 9(3), pages 203-228.
  3. Inui, Koji & Kijima, Masaaki, 2005. "On the significance of expected shortfall as a coherent risk measure," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(4), pages 853-864, April.
  4. Song Xi Chen, 2005. "Nonparametric Inference of Value-at-Risk for Dependent Financial Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(2), pages 227-255.
  5. Francis X. Diebold & Til Schuermann & John D. Stroughair, 1998. "Pitfalls and Opportunities in the Use of Extreme Value Theory in Risk Management," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 98-10, Wharton School Center for Financial Institutions, University of Pennsylvania.
  6. Timotheos Angelidis & Stavros Degiannakis, 2007. "Backtesting VaR Models: An Expected Shortfall Approach," Working Papers, University of Crete, Department of Economics 0701, University of Crete, Department of Economics.
  7. John Cotter, 2004. "Downside risk for European equity markets," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(10), pages 707-716.
  8. Gencay, Ramazan & Selcuk, Faruk, 2004. "Extreme value theory and Value-at-Risk: Relative performance in emerging markets," International Journal of Forecasting, Elsevier, Elsevier, vol. 20(2), pages 287-303.
  9. Carlo Acerbi & Claudio Nordio & Carlo Sirtori, 2001. "Expected Shortfall as a Tool for Financial Risk Management," Papers cond-mat/0102304, arXiv.org.
  10. Gencay, Ramazan & Selcuk, Faruk & Ulugulyagci, Abdurrahman, 2003. "High volatility, thick tails and extreme value theory in value-at-risk estimation," Insurance: Mathematics and Economics, Elsevier, vol. 33(2), pages 337-356, October.
  11. McNeil, Alexander J. & Frey, Rudiger, 2000. "Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach," Journal of Empirical Finance, Elsevier, Elsevier, vol. 7(3-4), pages 271-300, November.
Full references (including those not matched with items on IDEAS)

Citations

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

Cited by:
  1. Kostas Andriosopoulos & Nikos Nomikos, 2012. "Risk management in the energy markets and Value-at-Risk modelling: a Hybrid approach," RSCAS Working Papers, European University Institute 2012/47, European University Institute.

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:ces:ceswps:_2820. 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: (Julio Saavedra).

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.