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Scaling laws: a viable alternative to value at risk?

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  • Thomas Chopping

Abstract

Recent research has found a number of scaling law relationships in foreign exchange data. These relationships, estimated using simple ordinary least squares, can be used to forecast losses in foreign exchange time series from as little as one month's tick data. We compare the loss forecasts from a new scaling law against six parametric Value at Risk models. Compared to these models, the new scaling law is easier to fit, provides more stable forecasts and is very accurate.

Suggested Citation

  • Thomas Chopping, 2014. "Scaling laws: a viable alternative to value at risk?," Quantitative Finance, Taylor & Francis Journals, vol. 14(5), pages 889-911, May.
    • Handle: RePEc:taf:quantf:v:14:y:2014:i:5:p:889-911
    DOI: 10.1080/14697688.2014.882070
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    References listed on IDEAS

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