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Value-at-Risk Analysis of Stock Returns Historical Simulation,Variance Techniques or Tail Index Estimation?

  • R.W.J. van den Goorbergh
  • P.J.G. Vlaar

In this paper various Value-at-Risk techniques are applied to the Dutch stock market index AEX and to the Dow Jones Industrial Average. The main conclusion are: (1) Changing volatility over time is the most important characteristic of stock returns when modelling value-at-risk; (2) For low confidence levels, the fat tails of the distribution can best be mod- eled by means of the t-distribution; (3) Tail index estimators are not successful, due to the fact that they can not cope with the volatility clustering phenomenon.

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File URL: http://www.dnb.nl/binaries/sr040_tcm46-146818.pdf
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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 40.

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Length: 39 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:dnb:staffs:40
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/

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  1. de Haan, Laurens & Resnick, Sidney I. & Rootzén, Holger & de Vries, Casper G., 1989. "Extremal behaviour of solutions to a stochastic difference equation with applications to arch processes," Stochastic Processes and their Applications, Elsevier, vol. 32(2), pages 213-224, August.
  2. Jon Danielsson & Casper G. de Vries, 1998. "Beyond the Sample: Extreme Quantile and Probability Estimation," FMG Discussion Papers dp298, Financial Markets Group.
  3. Vlaar, Peter J G & Palm, Franz C, 1993. "The Message in Weekly Exchange Rates in the European Monetary System: Mean Reversion, Conditional Heteroscedasticity, and Jumps," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 351-60, July.
  4. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
  5. M.J.B. Hall, 1996. "The amendment to the capital accord to incorporate market risk," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 49(197), pages 271-277.
  6. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  7. Darryll Hendricks, 1996. "Evaluation of value-at-risk models using historical data," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 39-69.
  8. R.W.J. van den Goorbergh, 1999. "Value-at-Risk and least squares tail index estimation," WO Research Memoranda (discontinued) 578, Netherlands Central Bank, Research Department.
  9. Vlaar, Peter J. G., 2000. "Value at risk models for Dutch bond portfolios," Journal of Banking & Finance, Elsevier, vol. 24(7), pages 1131-1154, July.
  10. Jeffrey A. Frankel, 1993. "On Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061546, June.
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