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

Evaluating Value-at-Risk models via Quantile regressions

Contents:

Author Info

  • Gaglianone, Wagner Piazza
  • Linton, Oliver
  • Lima, Luiz Renato Regis de Oliveira

Abstract

This paper is concerned with evaluating value at risk estimates. It is well known that using only binary variables to do this sacrifices too much information. However, most of the specification tests (also called backtests) avaliable in the literature, such as Christoffersen (1998) and Engle and Maganelli (2004) are based on such variables. In this paper we propose a new backtest that does not realy solely on binary variable. It is show that the new backtest provides a sufficiant condition to assess the performance of a quantile model whereas the existing ones do not. The proposed methodology allows us to identify periods of an increased risk exposure based on a quantile regression model (Koenker & Xiao, 2002). Our theorical findings are corroborated through a monte Carlo simulation and an empirical exercise with daily S&P500 time series.

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://bibliotecadigital.fgv.br/dspace/bitstream/10438/1718/2/VQR.pdf
Download Restriction: no

Bibliographic Info

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 679.

as in new window
Length:
Date of creation: 04 Sep 2008
Date of revision:
Handle: RePEc:fgv:epgewp:679

Contact details of provider:
Postal: Praia de Botafogo 190, sala 1100, Rio de Janeiro/RJ - CEP: 22253-900
Phone: 55-21-2559-5871
Fax: 55-21-2553-8821
Email:
Web page: http://epge.fgv.br
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

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. 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.
  2. Jon Danielsson & Bjørn N. Jorgensen & Sarma Mandira & Gennady Samorodnitsky & C. G. de Vries, 2005. "Subadditivity re–examined: the case for value-at-risk," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 24668, London School of Economics and Political Science, LSE Library.
  3. Peter Christoffersen, 2004. "Backtesting Value-at-Risk: A Duration-Based Approach," Journal of Financial Econometrics, Society for Financial Econometrics, Society for Financial Econometrics, vol. 2(1), pages 84-108.
  4. M.J.B. Hall, 1996. "The amendment to the capital accord to incorporate market risk," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 49(197), pages 271-277.
  5. Koenker, Roger & Zhao, Quanshui, 1996. "Conditional Quantile Estimation and Inference for Arch Models," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 12(05), pages 793-813, December.
  6. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
  7. Issler, João Victor & Lima, Luiz Renato Regis de Oliveira, 2007. "A Panel Data Approach to Economic Forecasting: The Bias-Corrected Average Forecast," Economics Working Papers (Ensaios Economicos da EPGE), FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) 642, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  8. Huisman, Ronald, et al, 2001. "Tail-Index Estimates in Small Samples," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 19(2), pages 208-16, April.
  9. Giacomini, Raffaella & Komunjer, Ivana, 2002. "Evaluation and Combination of Conditional Quantile Forecasts," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt4n99t4wz, Department of Economics, UC San Diego.
  10. Robert Engle & Simone Manganelli, 2000. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0841, Econometric Society.
  11. Philipp Hartmann & Jon Danielsson, 1998. "The Cost of Conservatism: Extreme Returns, Value-at Risk, and the Basle Multiplicaiton Factor," FMG Special Papers, Financial Markets Group sp100, Financial Markets Group.
  12. Christoffersen, Peter & Hahn, Jinyong & Inoue, Atsushi, 2001. "Testing and comparing Value-at-Risk measures," Journal of Empirical Finance, Elsevier, Elsevier, vol. 8(3), pages 325-342, July.
  13. Hartz, Christoph & Mittnik, Stefan & Paolella, Marc, 2006. "Accurate value-at-risk forecasting based on the normal-GARCH model," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 51(4), pages 2295-2312, December.
  14. Roger Koenker & Zhijie Xiao, 2002. "Inference on the Quantile Regression Process," Econometrica, Econometric Society, Econometric Society, vol. 70(4), pages 1583-1612, July.
  15. Sean D. Campbell, 2005. "A review of backtesting and backtesting procedures," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-21, Board of Governors of the Federal Reserve System (U.S.).
  16. Jose Lopez, 1998. "Methods for evaluating value-at-risk estimates," Research Paper, Federal Reserve Bank of New York 9802, Federal Reserve Bank of New York.
  17. José Ferreira Machado & José Mata, 1998. "Earning Functions in Portugal 1982-1994: Evidence From Quantile Regressions," Working Papers, Banco de Portugal, Economics and Research Department w199802, Banco de Portugal, Economics and Research Department.
  18. Lima, Luiz Renato Regis de Oliveira & Neri, Breno de Andrade Pinheiro, 2006. "Comparing Value-at-Risk Methodologies," Economics Working Papers (Ensaios Economicos da EPGE), FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) 629, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  19. R. F. Engle & A. J. Patton, 2001. "What good is a volatility model?," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 1(2), pages 237-245.
  20. Jean-Pierre Zigrand & Jon Danielsson, 2003. "On time-scaling of risk and the square–root–of–time rule," FMG Discussion Papers, Financial Markets Group dp439, Financial Markets Group.
  21. Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
  22. Jeremy Berkowitz & James O'Brien, 2002. "How Accurate Are Value-at-Risk Models at Commercial Banks?," Journal of Finance, American Finance Association, American Finance Association, vol. 57(3), pages 1093-1111, 06.
  23. 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.
  24. Linton, O. & Whang, Yoon-Jae, 2007. "The quantilogram: With an application to evaluating directional predictability," Journal of Econometrics, Elsevier, Elsevier, vol. 141(1), pages 250-282, November.
  25. Keith Kuester & Stefan Mittnik & Marc S. Paolella, 2006. "Value-at-Risk Prediction: A Comparison of Alternative Strategies," Journal of Financial Econometrics, Society for Financial Econometrics, Society for Financial Econometrics, vol. 4(1), pages 53-89.
  26. Franses, Philip Hans & Ghijsels, Hendrik, 1999. "Additive outliers, GARCH and forecasting volatility," International Journal of Forecasting, Elsevier, Elsevier, vol. 15(1), pages 1-9, February.
  27. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 33-50, January.
  28. Peter Christoffersen & Sílvia Gonçalves, 2004. "Estimation Risk in Financial Risk Management," CIRANO Working Papers, CIRANO 2004s-15, CIRANO.
  29. Charles, Amelie & Darne, Olivier, 2005. "Outliers and GARCH models in financial data," Economics Letters, Elsevier, Elsevier, vol. 86(3), pages 347-352, March.
  30. Matthew Pritsker, 2001. "The hidden dangers of historical simulation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-27, Board of Governors of the Federal Reserve System (U.S.).
  31. M.J.B. Hall, 1996. "The amendment to the capital accord to incorporate market risk," BNL Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 49(197), pages 271-277.
  32. Moshe Buchinsky, 1998. "Recent Advances in Quantile Regression Models: A Practical Guideline for Empirical Research," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 33(1), pages 88-126.
  33. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-24, Board of Governors of the Federal Reserve System (U.S.).
  34. Powell, James L., 1984. "Least absolute deviations estimation for the censored regression model," Journal of Econometrics, Elsevier, Elsevier, vol. 25(3), pages 303-325, July.
  35. Pascual, Lorenzo & Romo, Juan & Ruiz, Esther, 2006. "Bootstrap prediction for returns and volatilities in GARCH models," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 50(9), pages 2293-2312, May.
  36. Len Umantsev & Victor Chernozhukov, 2001. "Conditional value-at-risk: Aspects of modeling and estimation," Empirical Economics, Springer, Springer, vol. 26(1), pages 271-292.
  37. repec:wop:humbsf:1999-78 is not listed on IDEAS
  38. Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 43-61, January.
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. Cathy W. S. Chen & Richard Gerlach & Bruce B. K. Hwang & Michael McAleer, 2011. "Forecasting Value-at-Risk Using Nonlinear Regression Quantiles and the Intra-day Range," Working Papers in Economics, University of Canterbury, Department of Economics and Finance 11/22, University of Canterbury, Department of Economics and Finance.
  2. Aramonte, Sirio & Giudice Rodriguez, Marius del & Wu, Jason, 2013. "Dynamic factor Value-at-Risk for large heteroskedastic portfolios," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(11), pages 4299-4309.
  3. Wagner Piazza Gaglianone & Jaqueline Terra Moura Marins, 2014. "Risk Assessment of the Brazilian FX Rate," Working Papers Series, Central Bank of Brazil, Research Department 344, Central Bank of Brazil, Research Department.
  4. Rubia, Antonio & Sanchis-Marco, Lidia, 2013. "On downside risk predictability through liquidity and trading activity: A dynamic quantile approach," International Journal of Forecasting, Elsevier, Elsevier, vol. 29(1), pages 202-219.
  5. Elena-Ivona Dumitrescu & Christophe Hurlin & Vinson Pham, 2012. "Backtesting Value-at-Risk: From Dynamic Quantile to Dynamic Binary Tests," Working Papers, HAL halshs-00671658, HAL.
  6. Steven Kou & Xianhua Peng, 2014. "On the Measurement of Economic Tail Risk," Papers, arXiv.org 1401.4787, arXiv.org, revised Feb 2014.
  7. Hua, Jian & Manzan, Sebastiano, 2013. "Forecasting the return distribution using high-frequency volatility measures," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(11), pages 4381-4403.
  8. Diego Fresoli & Esther Ruiz, 2014. "The uncertainty of conditional returns, volatilities and correlations in DCC models," Statistics and Econometrics Working Papers, Universidad Carlos III, Departamento de Estadística y Econometría ws140202, Universidad Carlos III, Departamento de Estadística y Econometría.
  9. Colletaz, Gilbert & Hurlin, Christophe & Pérignon, Christophe, 2013. "The Risk Map: A new tool for validating risk models," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(10), pages 3843-3854.

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:fgv:epgewp:679. 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: (Núcleo de Computação da EPGE).

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.