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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)

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

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models

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  1. Vries, Caspar de & Danielsson, Jon, 1996. "Tail Index and Quantile Estimation with Very High Frequency Data," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH.
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