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Forecasting multidimensional tail risk at short and long horizons

Author

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  • Polanski, Arnold

    (University of East Anglia)

  • Stoja, Evarist

    (School of Economics, Finance and Management, University of Bristol)

Abstract

Multidimensional Value at Risk (MVaR) generalises VaR in a natural way as the intersection of univariate VaRs. We reduce the dimensionality of MVaRs which allows for adapting the techniques and applications developed for VaR to MVaR. As an illustration, we employ VaR forecasting and evaluation techniques. One of our forecasting models builds on the progress made in the volatility literature and decomposes multidimensional tail events into long-term trend and short-term cycle components. We compute short and long-term MVaR forecasts for several multidimensional time series and discuss their (un)conditional accuracy.

Suggested Citation

  • Polanski, Arnold & Stoja, Evarist, 2017. "Forecasting multidimensional tail risk at short and long horizons," Bank of England working papers 660, Bank of England.
    • Handle: RePEc:boe:boeewp:0660
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    Cited by:

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    2. Stoja, Evarist & Polanski, Arnold & Nguyen, Linh H. & Pereverzin, Aleksandr, 2023. "Does systematic tail risk matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    3. Wang, Lu & Wu, Jiangbin & Cao, Yang & Hong, Yanran, 2022. "Forecasting renewable energy stock volatility using short and long-term Markov switching GARCH-MIDAS models: Either, neither or both?," Energy Economics, Elsevier, vol. 111(C).
    4. Zhang, Li & Wang, Lu & Peng, Lijuan & Luo, Keyu, 2023. "Measuring the response of clean energy stock price volatility to extreme shocks," Renewable Energy, Elsevier, vol. 206(C), pages 1289-1300.

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    More about this item

    Keywords

    Multidimensional risk; multidimensional Value at Risk; two-factor decomposition; long-horizon forecasting;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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