An Empirical Investigation of Value-at-Risk in Long and Short Trading Positions
AbstractThis paper uses the Value-at-Risk approach to define the risk in both long and short trading positions. The investigation is done on some major market indices(Japanese, UK, German and US). The performance of models that takes into account skewness and fat-tails are compared to symmetric models in relation to both the specific model for estimating the variance, and the distribution of the variance estimate used as input in the VaR estimation. The results indicate that more flexible models not necessarily perform better in predicting the VaR forecast; the reason for this is most probably the complexity of these models. A general result is that different methods for estimating the variance are needed for different confidence levels of the VaR, and for the different indices. Also, different models are to be used for the left respectively the right tail of the distribution.
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Bibliographic InfoPaper provided by Hanken School of Economics in its series Working Papers with number 526.
Length: 37 pages
Date of creation: 13 Apr 2007
Date of revision:
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Postal: Hanken School of Economics, Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland
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Web page: http://www.hanken.fi
More information through EDIRC
Value-at-Risk; asymmetry; Exponential GARCH; Asymmetric Power ARCH; long-trading; short-trading;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-08 (All new papers)
- NEP-FOR-2007-08-08 (Forecasting)
- NEP-RMG-2007-08-08 (Risk Management)
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