Forecasting Value-at-Risk with Time-Varying Variance, Skewnessn and Kurtosis in an Exponential Weighted Moving Average Framework
This paper provides an insight to the time-varying dynamics of the shape of the distribution of financial return series by proposing an exponential weighted moving average model that jointly estimates volatility, skewness and kurtosis over time using a modified form of the Gram-Charlier density in which skewness and kurtosis appear directly in the functional form of this density. In this setting VaR can be described as a function of the time-varying higher moments by applying the Cornish-Fisher expansion series of the first four moments. An evaluation of the predictive performance of the proposed model in the estimation of 1-day and 10-day VaR forecasts is performed in comparison with the historical simulation, filtered historical simulation and GARCH model. The adequacy of the VaR forecasts is evaluated under the unconditional, independence and conditional likelihood ratio tests as well as Basel II regulatory tests. The results presented have significant implications for risk management, trading and hedging activities as well as in the pricing of equity derivatives.
|Date of creation:||Jun 2012|
|Contact details of provider:|| Postal: Piazza Scaravilli, 2, and Strada Maggiore, 45, 40125 Bologna|
Phone: +39 051 209 8019 and 2600
Fax: +39 051 209 8040 and 2664
Web page: http://www.dse.unibo.it
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marcucci Juri, 2005. "Forecasting Stock Market Volatility with Regime-Switching GARCH Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(4), pages 1-55, December.
- Peter Christoffersen & Sílvia Gonçalves, 2004. "Estimation Risk in Financial Risk Management," CIRANO Working Papers 2004s-15, CIRANO.
- Christoffersen, Peter & Heston, Steve & Jacobs, Kris, 2006.
"Option valuation with conditional skewness,"
Journal of Econometrics,
Elsevier, vol. 131(1-2), pages 253-284.
- Peter Christoffersen & Steve Heston & Kris Jacobs, 2003. "Option Valuation with Conditional Skewness," CIRANO Working Papers 2003s-50, CIRANO.
- Anders Wilhelmsson, 2009. "Value at Risk with time varying variance, skewness and kurtosis--the NIG-ACD model," Econometrics Journal, Royal Economic Society, vol. 12(1), pages 82-104, 03.
- Timotheos Angelidis & Alexandros Benos & Stavros Degiannakis, 2007. "A robust VaR model under different time periods and weighting schemes," Review of Quantitative Finance and Accounting, Springer, vol. 28(2), pages 187-201, February.
- Angelidis, Timotheos & Benos, Alexandros & Degiannakis, Stavros, 2007. "A Robust VaR Model under Different Time Periods and Weighting Schemes," MPRA Paper 80466, University Library of Munich, Germany.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Aamir R. Hashmi & Anthony S. Tay, 2001. "Global and Regional Sources of Risk in Equity Markets: Evidence from Factor Models with Time-Varying Conditional Skewness," Departmental Working Papers wp0116, National University of Singapore, Department of Economics.
- Anthony S. Tay & Aamir R. Hashmi, 2004. "Global and Regional Sources of Risk in Equity Markets: Evidence from Factor Models with Time-Varying Conditional Skewness," Econometric Society 2004 Far Eastern Meetings 634, Econometric Society.
- Esther B. Del Brio & Trino-Manuel Niguez & Javier Perote, 2009. "Gram-Charlier densities: a multivariate approach," Quantitative Finance, Taylor & Francis Journals, vol. 9(7), pages 855-868.
- Alizadeh, Amir H. & Gabrielsen, Alexandros, 2013. "Dynamics of credit spread moments of European corporate bond indexes," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3125-3144. Full references (including those not matched with items on IDEAS)