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Value-at-Risk with Application of DCC-GARCH Model

Author

Listed:
  • Tomas Meluzin

    (Brno University of Technology, Czech Republic)

  • Marek Zinecker

    (Brno University of Technology, Czech Republic)

  • Michal Bernard Pietrzak

    (Nicolaus Copernicus University, Poland)

  • Marcin Faldzinski

    (Nicolaus Copernicus University, Poland)

  • Adam P. Balcerzak

    (Nicolaus Copernicus University, Poland)

Abstract

The article concentrates on modelling of volatility of capital markets and estimation of Value-at-Risk. The aim of the article is the description of volatility and interdependencies among three indices: WIG (Poland), DAX (Germany) and DJIA (United States). In order to measure the volatility and strength of interdependencies DCC-GARCH-In model was used, where an impact of the volatility of other markets is additionally taken into consideration during construction of the model. The conducted research for the years 2000-2012 confirmed the presence of interactions among selected capital markets. Next, the model DCC-GARCH-In was applied for evaluation of Value-at-Risk and the obtained measure was assessed with application of backtesting procedure. The results confirm that including volatility in the variance in DCC-GARCH-In model enables better assessment of VaR measure.

Suggested Citation

  • Tomas Meluzin & Marek Zinecker & Michal Bernard Pietrzak & Marcin Faldzinski & Adam P. Balcerzak, 2016. "Value-at-Risk with Application of DCC-GARCH Model," Working Papers 35/2016, Institute of Economic Research, revised Sep 2016.
    • Handle: RePEc:pes:wpaper:2016:no35
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    More about this item

    Keywords

    capital market; value-at-risk; backtesting; DCC-GARCH model; conditional variance;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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