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Predicting Tail-related Risk Measures: The Consequences of Using GARCH Filters for non-GARCH Data

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Author Info

  • Amine JALAL

    (HEC-University of Lausanne and FAME)

  • Michael ROCKINGER

    (HEC-University of Lausanne, FAME and CEPR)

Abstract

We investigate the consequences for value-at-risk and expected short-fall purposes of using a GARCH filter on various mis-specified processes. We show that careful investigation of the adequacy of the GARCH filter is necessary since under mis-specifications a GARCH filter appears to do more harm than good. Using an unconditional non filtered tail estimate appears to perform satisfactorily for dependent data with a degree of dependency corresponding to actual market conditions.

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Bibliographic Info

Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp115.

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Date of creation: Jun 2004
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Handle: RePEc:fam:rpseri:rp115

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Keywords: Extreme value theory; Value at Risk (VaR); Expected shortfall; GARCH; Markov switching; Jump diffusion; Backtesting.;

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Cited by:
  1. Weigert, Florian, 2012. "In Search of Cushion? Crash Aversion and the Cross-Section of Expected Stock Returns Worldwide," Working Papers on Finance 1325, University of St. Gallen, School of Finance, revised Mar 2013.
  2. Bertrand B. Maillet & Jean-Philippe R. Médecin, 2010. "Extreme Volatilities, Financial Crises and L-moment Estimations of Tail-indexes," Working Papers 2010_10, Department of Economics, University of Venice "Ca' Foscari".
  3. Marco Rocco, 2011. "Extreme value theory for finance: a survey," Questioni di Economia e Finanza (Occasional Papers) 99, Bank of Italy, Economic Research and International Relations Area.
  4. Huang, Alex YiHou, 2010. "An optimization process in Value-at-Risk estimation," Review of Financial Economics, Elsevier, vol. 19(3), pages 109-116, August.

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