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Value-at-risk for the long and short trading position with the Pearson type-IV distribution

Author

Listed:
  • Stavros Stavroyiannis
  • Ilias Makris
  • Vasilis Nikolaidis
  • Leonidas Zarangas

Abstract

We examine the value-at-risk where the volatility and returns are modelled via a typical GARCH(1,1) model and the innovations process is the Pearson type-IV distribution. As case studies, we examine the NASDAQ and FTSE100 indices from 12-Dec-1984 to 21-Dec-2000. The model is fitted to the data via maximisation of the logarithm of the maximum likelihood estimator. In sample backtesting is performed by the success-failure ratio, the Kupiec p-test, the Christoffersen tests, the expected shortfall, and the DQ test of Engle and Manganelli. The results indicate that the Pearson type-IV distribution gives better results compared with the skewed student distribution.

Suggested Citation

  • Stavros Stavroyiannis & Ilias Makris & Vasilis Nikolaidis & Leonidas Zarangas, 2013. "Value-at-risk for the long and short trading position with the Pearson type-IV distribution," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 15(1), pages 14-27.
    • Handle: RePEc:ids:gbusec:v:15:y:2013:i:1:p:14-27
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