Model choice and value-at-risk estimation |
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| Authors: | Zisheng Ouyang |
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| Institution: | (1) Department of Financial and Management Engineering, Aegean University, 31, Fostini Street, 82100 Chios, Greece;(2) Group Risk Management, National Bank of Greece, Athens, Greece;(3) Department of Statistics, Athens University of Economics and Business, 76, Patission Street, 10434 Athens, Greece |
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| Abstract: | Value at risk (VaR) is a commonly used tool to measure market risk. In this paper, we discuss the problems of model choice
and VaR performance. The VaRs of daily returns of the Shanghai and Shenzhen indexes are calculated using equally weighted
moving average (EQMA), exponentially weighted moving average (EWMA), GARCH(1,1), empirical density estimation method, and
the Pareto-type extreme-value distribution methods. Considering the length of the window and the requirement for adequate
capital, back testing indicates that the Pareto-type extreme-value distribution method reflects the real market risk more
accurately than the other models. |
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