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VaR BASED RISK MANAGEMENT

Author

Listed:
  • Mária Bohdalová

    (Comenius University in Bratislava)

  • Michal Greguš

    (Comenius University in Bratislava)

Abstract

In this paper we discuss the Value–at–Risk concept and we analyse the market risk by using EWMA approach. EWMA (exponentially weighted moving average) forecasting technique is a popular measure of various risks in financial risk management. We will compare standard EWMA, robust EWMA and skewed EWMA forecast of VaR. JP Morgan standard EWMA is derived from Gaussian distribution. Robust EWMA is based on Laplace distribution and skewed EWMA is a new approach derived from an asymmetric Laplace distribution. Asymmetric Laplace distribution takes into account both skewness and heavy tails in return distribution and the time varying nature of them in practice. Skewed EWMA VaR is a generalization of the standard EWMA method. Using these approaches we will analyse selected financial series (three European market indexes and one exchange rate). We have found andconfirmed that skewed EWMA forecasting of VaR outperforms the standard EWMA method.

Suggested Citation

  • Mária Bohdalová & Michal Greguš, 2013. "VaR BASED RISK MANAGEMENT," CBU International Conference Proceedings, ISE Research Institute, vol. 1(0), pages 25-33, June.
    • Handle: RePEc:aad:iseicj:v:1:y:2013:i:0:p:25-33
    DOI: 10.12955/cbup.v1.11
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    More about this item

    Keywords

    EWMA VaR; robust; skewed EWMA VaR; Value–at–Risk;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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