Modelling VaR for foreign-asset portfolios in continuous time |
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Authors: | Fen-Ying Chen Szu-Lang Liao |
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Institution: | 1. Department of Finance, Shih Hsin University, #111, Sec. 1, Mu-Cha Road, Taipei 116, Taiwan, ROC;2. Department of Money and Banking at National Chengchi University, 64, Chih-nan Road, Sec. 2, Taipei 116, Taiwan, ROC |
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Abstract: | VaR is widely viewed as a measure of market risk of a portfolio. The purpose of this article is to provide a VaR model for foreign-asset portfolios in continuous time. In the VaR model, the VaRs are not only a function of volatilities of asset returns and exchange rate but also a function of correlation coefficient between foreign assets and exchange rate. Moreover, by backtesting, the empirical results show that the new VaR model can efficiently evaluate the market risk of foreign-asset portfolios. |
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Keywords: | Continuous time Foreign-asset portfolio Volatility of exchange rate Correlation coefficient Backtesting |
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