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Comparing Value-at-Risk Methodologies

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  • Lima, Luiz Renato Regis de Oliveira
  • Neri, Breno de Andrade Pinheiro

Abstract

We perform a Monte Carlo experimet to compare four different Value-at-Risk methodologies, RiskMetrics, Gaussian GARCH(1,1), Generalized Student-t APARCH(1,1), and ARCH(1) Quantile, under five different data generating processes. The ARCH(1) Quantile methodology does not assume any distribution for the returns, and this robustness is shown to avoid trajectories with too many violations. The number of violations tends to be higher in the non-robust methodologies when the distribution differs from the Gaussian one. We also perform an empirical exercise applying the four Value-at-Risk methodologies to daily return of the IBOVESPA (measured in dollar values) in a period of market turmoil (1996-2000), when happens the Korean crisis, the Russian crisis and the blast of the technology-stock market bubble. We display that, again, the ARCH(1) Quantile methodology dominates the non-robust methodologies, in the sense that it presents the least number of violations

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 629.

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Date of creation: 01 Nov 2006
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Handle: RePEc:fgv:epgewp:629

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Cited by:
  1. Lima, Luiz Renato & Gaglianone, Wagner Piazza & Sampaio, Raquel M.B., 2008. "Debt ceiling and fiscal sustainability in Brazil: A quantile autoregression approach," Journal of Development Economics, Elsevier, Elsevier, vol. 86(2), pages 313-335, June.
  2. Allen, D.E. & McAleer, M.J. & Amran, R., 2011. "Volatility Spillovers from the Chinese Stock Market to Economic Neighbours," Econometric Institute Research Papers, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute EI 2011-44, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  3. Xiao, Zhijie & Lima, Luiz Renato Regis de Oliveira, 2006. "Testing Covariance Stationarity," Economics Working Papers (Ensaios Economicos da EPGE), FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) 632, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. Wagner P. Gaglianone & Luiz Renato Lima & Oliver Linton, 2008. "Evaluating Value-at-Risk Models via Quantile Regressions," Working Papers Series, Central Bank of Brazil, Research Department 161, Central Bank of Brazil, Research Department.
  5. David E. Allen & Michael McAleer & Robert J. Powell & Abhay K. Singh, 2012. "Volatility Spillovers from the US to Australia and China across the GFC," Documentos de Trabajo del ICAE, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico 2012-30, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  6. repec:ecu:wpaper:2010-03 is not listed on IDEAS
  7. Aymen BEN REJEB & Ousama BEN SALHA & Jaleleddine BEN REJEB, 2012. "Value-at-Risk Analysis for the Tunisian Currency Market: A Comparative Study," International Journal of Economics and Financial Issues, Econjournals, Econjournals, vol. 2(2), pages 110-125.

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