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Violation duration as a better way of VaR model evaluation : evidence from Turkish market portfolio

  • Kilic, Ekrem

Financial crisis those we have been experienced during last two decades encouraged the efforts of both academicians and the market participants to develop clear representations of the risk exposure of a �nancial institute. As a useful tool for measuring market risk of a portfolio, Value-at-Risk has emerged as the standard. However, there are several alternative Value-at-Risk implementations which may pro- duce signi�cantly di¤erent Value-at-Risk forecasts. Thus, evaluation of Value-at-Risk forecasts is as crucial as VaR itself. In this paper I will use the methodology which has described by Christoffersen and Pelletier[6] and I extended the methodology to create duration based analogous of unconditional coverage, conditional coverage and inde- pendence tests. I evaluated 14 Value-at-Risk implementation by using a Turkish Market portfolio which contain foreing currency, stock and bonds.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5610.

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Date of creation: 01 May 2006
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Handle: RePEc:pra:mprapa:5610
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  1. Ekrem Kilic, 2005. "Forecasting Volatility of Turkish Markets: A Comparison of Thin and Thick Models," Econometrics 0510007, EconWPA.
  2. 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.).
  3. Peter Christoffersen & Jinyong Hahn & Atsushi Inoue, 1999. "Testing, Comparing, and Combining Value at Risk Measures," Center for Financial Institutions Working Papers 99-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
  4. Jose A. Lopez, 1998. "Methods for evaluating value-at-risk estimates," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 119-124.
  5. Susan Thomas & Mandira Sarma & Ajay Shah, 2003. "Selection of Value-at-Risk models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 22(4), pages 337-358.
  6. Jon Danielsson & Casper G. de Vries, 1998. "Beyond the Sample: Extreme Quantile and Probability Estimation," FMG Discussion Papers dp298, Financial Markets Group.
  7. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
  8. Peter Christoffersen & Denis Pelletier, 2003. "Backtesting Value-at-Risk: A Duration-Based Approach," CIRANO Working Papers 2003s-05, CIRANO.
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