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

Robust Value at Risk Prediction

Contents:

Author Info

  • Loriano Mancini

    ()

  • Fabio Trojani

    ()

Abstract

We propose a general robust semiparametric bootstrap method to estimate conditional predictive distributions of GARCH-type models. Our approach is based on a robust estimator for the parameters in GARCH-type models and a robustified resampling method for standardized GARCH residuals, which controls the bootstrap instability due to influential observations in the tails of standardized GARCH residuals. Monte Carlo simulation showsthat our method consistently provides lower VaR forecast errors, often to a large extent, and in contrast to classical methods never fails validation tests at usual significance levels. We test extensively our approach in the context of real data applications to VaR prediction for market risk, and find that only our robust procedure passes all validation tests at usualconfidence levels. Moreover, the smaller tail estimation risk of robust VaR forecasts implies VaR prediction intervals that can be nearly 20% narrower and 50% less volatile over time. This is a further desirable property of our method, which allows to adapt risky positions to VaR limits more smoothly and thus more efficiently.

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://www1.vwa.unisg.ch/RePEc/usg/dp2007/DP-36-Ma.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2007 with number 2007-36.

as in new window
Length: 58 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:usg:dp2007:2007-36

Contact details of provider:
Postal: Dufourstrasse 50, CH - 9000 St.Gallen
Phone: +41 71 224 23 25
Fax: +41 71 224 31 35
Email:
Web page: http://www.seps.unisg.ch/
More information through EDIRC

Related research

Keywords: Backtesting; M-estimator; Extreme Value Theory; Breakdown Point;

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. Christian Gourieroux & Jean-Paul Laurent & Olivier Scaillet, 2000. "Sensitivity Analysis of Values at Risk," Working Papers 2000-05, Centre de Recherche en Economie et Statistique.
  2. Rosenberg, Joshua V. & Engle, Robert F., 2002. "Empirical pricing kernels," Journal of Financial Economics, Elsevier, vol. 64(3), pages 341-372, June.
  3. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  4. Foresi, S. & Paracchi, F., 1992. "The Conditional Distribution of Excess Returns: An Empirical Analysis," Working Papers 92-49, C.V. Starr Center for Applied Economics, New York University.
  5. Gourieroux, C. & Laurent, J. P. & Scaillet, O., 2000. "Sensitivity analysis of Values at Risk," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 225-245, November.
  6. Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
  7. Peracchi, Franco, 2002. "On estimating conditional quantiles and distribution functions," Computational Statistics & Data Analysis, Elsevier, vol. 38(4), pages 433-447, February.
  8. Engle, Robert F & Manganelli, Simone, 1999. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," University of California at San Diego, Economics Working Paper Series qt06m3d6nv, Department of Economics, UC San Diego.
  9. Hentschel, Ludger & Campbell, John, 1992. "No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns," Scholarly Articles 3220232, Harvard University Department of Economics.
  10. Jesus Gonzalo, 2004. "Which Extreme Values Are Really Extreme?," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(3), pages 349-369.
  11. Geert Bekaert & Guojun Wu, 1997. "Asymmetric Volatility and Risk in Equity Markets," NBER Working Papers 6022, National Bureau of Economic Research, Inc.
  12. Xu, Xinzhong & Taylor, Stephen J., 1994. "The Term Structure of Volatility Implied by Foreign Exchange Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(01), pages 57-74, March.
  13. Shinichi Sakata & Halbert White, 1998. "High Breakdown Point Conditional Dispersion Estimation with Application to S&P 500 Daily Returns Volatility," Econometrica, Econometric Society, vol. 66(3), pages 529-568, May.
  14. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-78, December.
  15. Yacine Ait-Sahalia & Andrew W. Lo, 2000. "Nonparametric Risk Management and Implied Risk Aversion," NBER Working Papers 6130, National Bureau of Economic Research, Inc.
  16. O. Scaillet, 2004. "Nonparametric Estimation and Sensitivity Analysis of Expected Shortfall," Mathematical Finance, Wiley Blackwell, vol. 14(1), pages 115-129.
  17. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Theory," Econometrica, Econometric Society, vol. 52(3), pages 681-700, May.
  18. 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, vol. 4(1), pages 53-89.
  19. Cowell, Frank A & Victoria-Feser, Maria-Pia, 1996. "Robustness Properties of Inequality Measures," Econometrica, Econometric Society, vol. 64(1), pages 77-101, January.
  20. Gagliardini, Patrick & Trojani, Fabio & Urga, Giovanni, 2005. "Robust GMM tests for structural breaks," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 139-182.
  21. Engle, Robert F & Gonzalez-Rivera, Gloria, 1991. "Semiparametric ARCH Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(4), pages 345-59, October.
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. Abad, Pilar & Benito, Sonia, 2013. "A detailed comparison of value at risk estimates," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 94(C), pages 258-276.
  2. Dias, Alexandra, 2013. "Market capitalization and Value-at-Risk," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5248-5260.

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:usg:dp2007:2007-36. 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: (Joerg Baumberger).

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.