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Risk Management in the Financial Services Sector—Applicability and Performance of VaR Models in Pakistan


  • Syeda Rabab Mudakkar

    (Centre for Mathematics and Statistical Sciences, Lahore School of Economics, Lahore)

  • Jamshed Y. Uppal

    (Department of Business and Economics, Catholic University of America, Washington, DC, USA)


Sound risk management practices by financial institution are critical to the stability of the institutions and to the sustainability of economic growth. We evaluate market risk based on the Value-at-Risk (VaR) approach for the KSE100 index return series over the period January 2001–June 2012. We estimate the conditional quantiles of the loss distribution under different distributional assumptions. Our back-testing results show that the procedure based on the Extreme Value Theory (EVT) performs better than methods which ignore the heavy tails of the innovations or the heteroskadasticity in returns. Analysis of Pre- and Post-Global Financial Crisis suggests that EVT based VaR measures which incorporate market dynamics may be helpful in managing market risk.

Suggested Citation

  • Syeda Rabab Mudakkar & Jamshed Y. Uppal, 2012. "Risk Management in the Financial Services Sector—Applicability and Performance of VaR Models in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 399-417.
  • Handle: RePEc:pid:journl:v:51:y:2012:i:4:p:399-417

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    Cited by:

    1. Mirjana Miletić & Siniša Miletić, 2016. "Performance of VaR in Developed and CEE Countries during the Global Financial Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 54-75, March.

    More about this item


    Value at Risk; GARCH Models; Extreme Value Theory; Back-testing; Global Financial Crisis;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions


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