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Market risk models for intraday data

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  • Pierre Giot

Abstract

In this paper, market risk at an intraday time horizon is quantified using normal GARCH, Student GARCH, RiskMetrics and high-frequency duration (log-ACD) models set in the framework of the conditional VaR methodology. Because of the small time horizon of the intraday returns (15 and 30 minute returns in this paper), an evaluation of intraday market risk can be useful to market participants (traders, market makers) involved in frequent trading. As expected, the volatility features an important intraday seasonality, which must be removed prior to using the market risk models. The four models are applied to intraday returns data for three stocks traded on the New York Stock Exchange and it is shown that the Student GARCH model performs best. The use of price durations as a measure of risk on time is commented upon.

Suggested Citation

  • Pierre Giot, 2005. "Market risk models for intraday data," The European Journal of Finance, Taylor & Francis Journals, vol. 11(4), pages 309-324.
  • Handle: RePEc:taf:eurjfi:v:11:y:2005:i:4:p:309-324
    DOI: 10.1080/1351847032000143396
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    References listed on IDEAS

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    1. Jean -Luc Prigent & Olivier Renault & Olivier Scaillet, 1999. "An Autoregressive Conditional Binomial Option Pricing Model," Working Papers 99-65, Center for Research in Economics and Statistics.
    2. Olivier V. Pictet & Michel M. Dacorogna & Ulrich A. Muller, 1996. "Heavy tails in high-frequency financial data," Working Papers 1996-12-11, Olsen and Associates.
    3. R.W.J. van den Goorbergh & P.J.G. Vlaar, 1999. "Value-at-Risk Analysis of Stock Returns Historical Simulation,Variance Techniques or Tail Index Estimation?," DNB Staff Reports (discontinued) 40, Netherlands Central Bank.
    4. J.L. Prigent & O. Renault & O. Scaillet., 1999. "An autoregressive conditional binomial option pricing model under stochastic rates," THEMA Working Papers 99-40, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    5. Gençay, Ramazan & Dacorogna, Michel & Muller, Ulrich A. & Pictet, Olivier & Olsen, Richard, 2001. "An Introduction to High-Frequency Finance," Elsevier Monographs, Elsevier, edition 1, number 9780122796715.
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