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How Risky Is the Value at Risk?

  • Roxana Chiriac


    ( University of Konstanz, CoFE)

  • Winfried Pohlmeier

    ( University of Konstanz, CoFE, ZEW, RCEA)

The recent financial crisis has raised numerous questions about the accuracy of value-at-risk (VaR) as a tool to quantify extreme losses. In this paper we present empirical evidence from assessing the out-of-sample performance and robustness of VaR before and during the recent financial crisis with respect to the choice of sampling window, return distributional assumptions and stochastic properties of the underlying financial assets. Moreover we develop a new data driven approach that is based on the principle of optimal combination and that provides robust and precise VaR forecasts for periods when they are needed most, such as the recent financial crisis.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 07_10.

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Date of creation: Jan 2010
Date of revision:
Handle: RePEc:rim:rimwps:07_10
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