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Time-varying conditional Johnson Su density in Value-at-Risk methodology

Author

Listed:
  • Peter Julian Cayton

    (UP School of Statistics)

  • Dennis Mapa

    (UP School of Statistics, and UP School of Economics)

Abstract

Value-at-Risk (VaR) is a standard method of forecasting future losses in a portfolio of financial assets. An alternative method of estimating VaR using time-varying conditional Johnson SU distribution is introduced in this paper, and the method is compared with other existing VaR models. Two estimation procedures using the Johnson distribution are developed in the paper: (1) the joint estimation of the volatility; and (2) the two-step procedure where estimation of the volatility is separated from the estimation of higher parameters, i.e., skewness and kurtosis. Empirical analyses of the two procedures are illustrated using data on foreign exchange rates and the Philippine Stock Exchange index. The methods are assessed using the standard forecast evaluation measures used in VaR models. Modeling procedures where estimation of higher parameters can be integrated in VaR methodology are introduced in the paper.Ê

Suggested Citation

  • Peter Julian Cayton & Dennis Mapa, 2015. "Time-varying conditional Johnson Su density in Value-at-Risk methodology," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 51(1), pages 23-44, June.
    • Handle: RePEc:phs:prejrn:v:52:y:2015:i:1:p:23-44
    as

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    File URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/915/815
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Domino, Krzysztof, 2020. "Multivariate cumulants in outlier detection for financial data analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 558(C).

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    More about this item

    Keywords

    time-varying parameters; Generalized AutoRegressive Conditional Heteroskedasticity models; non-normal distributions; risk management; financial econometrics;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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