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How Risky Is the Value at Risk?

Author

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  • Roxana Chiriac

    () (University of Konstanz, CoFE)

  • Winfried Pohlmeier

    (University of Konstanz, CoFE, ZEW, RCEA)

Abstract

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.

Suggested Citation

  • Roxana Chiriac & Winfried Pohlmeier, 2010. "How Risky Is the Value at Risk?," Working Paper series 07_10, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:07_10
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    File URL: http://www.rcea.org/RePEc/pdf/wp07_10.pdf
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    References listed on IDEAS

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    Cited by:

    1. McAleer, Michael & Jimenez-Martin, Juan-Angel & Perez-Amaral, Teodosio, 2013. "Has the Basel Accord improved risk management during the global financial crisis?," The North American Journal of Economics and Finance, Elsevier, pages 250-265.
    2. Shcherba, Alexandr, 2012. "Market risk valuation modeling for the European countries at the financial crisis of 2008," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 27(3), pages 20-35.

    More about this item

    Keywords

    Value at Risk; model risk; optimal forecast combination;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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