An Empirical Investigation of Value-at-Risk in Long and Short Trading Positions
This paper uses the Value-at-Risk approach to define the risk in both long and short trading positions. The investigation is done on some major market indices(Japanese, UK, German and US). The performance of models that takes into account skewness and fat-tails are compared to symmetric models in relation to both the specific model for estimating the variance, and the distribution of the variance estimate used as input in the VaR estimation. The results indicate that more flexible models not necessarily perform better in predicting the VaR forecast; the reason for this is most probably the complexity of these models. A general result is that different methods for estimating the variance are needed for different confidence levels of the VaR, and for the different indices. Also, different models are to be used for the left respectively the right tail of the distribution.
|Date of creation:||13 Apr 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Hanken School of Economics, Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland|
Phone: +358-9-431 331
Fax: +358-9-431 33 333
Web page: http://www.hanken.fi
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.:
- Bams, Dennis & Lehnert, Thorsten & Wolff, Christian C.P., 2005.
"An evaluation framework for alternative VaR-models,"
Journal of International Money and Finance,
Elsevier, vol. 24(6), pages 944-958, October.
- Bams, Dennis & Lehnert, Thorsten & Wolff, Christian C, 2002. "An Evaluation Framework for Alternative VaR Models," CEPR Discussion Papers 3403, C.E.P.R. Discussion Papers.
- 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.
- Yu Chuan Huang & Bor-Jing Lin, 2004. "Value-at-Risk Analysis for Taiwan Stock Index Futures: Fat Tails and Conditional Asymmetries in Return Innovations," Review of Quantitative Finance and Accounting, Springer, vol. 22(2), pages 79-95, 03.
- Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
- GIOT, Pierre & LAURENT, Sébastien, 2003.
"Market risk in commodity markets: a VaR approach,"
CORE Discussion Papers
2003028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
- GIOT, Pierre & LAURENT, Sébastien, 2001.
"Value-at-risk for long and short trading positions,"
CORE Discussion Papers
2001022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Pierre Giot & Sébastien Laurent, 2003. "Value-at-risk for long and short trading positions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(6), pages 641-663.
- Pierre Giot and S»bastien Laurent, 2001. "Value-At-Risk For Long And Short Trading Positions," Computing in Economics and Finance 2001 94, Society for Computational Economics.
- GIOT, Pierre & LAURENT, Sébastien, . "Value-at-Risk for long and short trading positions," CORE Discussion Papers RP 1707, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- 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.).
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Keith Kuester & Stefan Mittnik & Marc S. Paolella, 2006. "Value-at-Risk Prediction: A Comparison of Alternative Strategies," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(1), pages 53-89.
- Timotheos Angelidis & Alexandros Benos & Stavros Degiannakis, 2010. "The Use of GARCH Models in VaR Estimation," Working Papers 0048, University of Peloponnese, Department of Economics.
- Sean D. Campbell, 2005. "A review of backtesting and backtesting procedures," Finance and Economics Discussion Series 2005-21, Board of Governors of the Federal Reserve System (U.S.).
- Guermat, Cherif & Harris, Richard D. F., 2002. "Forecasting value at risk allowing for time variation in the variance and kurtosis of portfolio returns," International Journal of Forecasting, Elsevier, vol. 18(3), pages 409-419.
- Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
- So, Mike K.P. & Yu, Philip L.H., 2006. "Empirical analysis of GARCH models in value at risk estimation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 180-197, April.
- Balaban, Ercan, 2004. "Comparative forecasting performance of symmetric and asymmetric conditional volatility models of an exchange rate," Economics Letters, Elsevier, vol. 83(1), pages 99-105, April.
- Billio, Monica & Pelizzon, Loriana, 2000. "Value-at-Risk: a multivariate switching regime approach," Journal of Empirical Finance, Elsevier, vol. 7(5), pages 531-554, December.
When requesting a correction, please mention this item's handle: RePEc:hhb:hanken:0526. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Staffan Dellringer)
If references are entirely missing, you can add them using this form.