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How Risky Is the Value at Risk?

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  • Roxana Chiriac

    ()
    ( University of Konstanz, CoFE)

  • Winfried Pohlmeier

    ( University of Konstanz, CoFE, ZEW, RCEA)

Abstract

The recent financial crisis has raised numerous questions about the accuracy of value-at-risk (VaR) as a tool to quantify extreme losses. In this paper we present empirical evidence from assessing the out-of-sample performance and robustness of VaR before and during the recent financial crisis with respect to the choice of sampling window, return distributional assumptions and stochastic properties of the underlying financial assets. Moreover we develop a new data driven approach that is based on the principle of optimal combination and that provides robust and precise VaR forecasts for periods when they are needed most, such as the recent financial crisis.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 07_10.

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Date of creation: Jan 2010
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Handle: RePEc:rim:rimwps:07_10

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Related research

Keywords: Value at Risk; model risk; optimal forecast combination;

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Cited by:
  1. McAleer, M.J. & Jimenez-Martin, J-A. & Perez-Amaral, T., 2012. "Has the Basel Accord Improved Risk Management During the Global Financial Crisis?," Econometric Institute Research Papers EI 2012-29, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  2. Michael McAleer & Juan-�ngel Jim�nez-Mart�n & Teodosio P�rez-Amaral, 2013. "Has the Basel Accord Improved Risk Management During the Global Financial Crisis?," Tinbergen Institute Discussion Papers 13-010/III, Tinbergen Institute.
  3. Shcherba, Alexandr, 2012. "Market risk valuation modeling for the European countries at the financial crisis of 2008," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 27(3), pages 20-35.

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