IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

On risk prediction

  • Lönnbark, Carl

    ()

    (Department of Economics, Umeå University)

This thesis comprises four papers concerning risk prediction. Paper [I] suggests a nonlinear and multivariate time series model framework that enables the study of simultaneity in returns and in volatilities, as well as asymmetric effects arising from shocks. Using daily data 2000-2006 for the Baltic state stock exchanges and that of Moscow we nd recursive structures with Riga directly depending in returns on Tallinn and Vilnius, and Tallinn on Vilnius. For volatilities both Riga and Vilnius depend on Tallinn. In addition, we find evidence of asymmetric effects of shocks arising in Moscow and in the Baltic states on both returns and volatilities. Paper [II] argues that the estimation error in Value at Risk predictors gives rise to underestimation of portfolio risk. A simple correction is proposed and in an empirical illustration it is found to be economically relevant. Paper [III] studies some approximation approaches to computing the Value at Risk and the Expected Shortfall for multiple period asset returns. Based on the result of a simulation experiment we conclude that among the approaches studied the one based on assuming a skewed t distribution for the multiple period returns and that based on simulations were the best. We also found that the uncertainty due to the estimation error can be quite accurately estimated employing the delta method. In an empirical illustration we computed five day Value at Risk’s for the S&P 500 index. The approaches performed about equally well. Paper [IV] argues that the practise used in the valuation of the portfolio is important for the calculation of the Value at Risk. In particular, when liquidating a large portfolio the seller may not face horizontal demand curves. We propose a partially new approach for incorporating this fact in the Value at Risk and in an empirical illustration we compare it to a competing approach. We find substantial differences.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.econ.umu.se/DownloadAsset.action?contentId=56586&languageId=3&assetKey=ues770
Download Restriction: no

Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 770.

as
in new window

Length: 146 pages
Date of creation: 11 May 2009
Date of revision:
Handle: RePEc:hhs:umnees:0770
Contact details of provider: Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
Web page: http://www.econ.umu.se/
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hhs:umnees:0770. 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: (Kjell-Göran Holmberg)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.