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Estimation portfolio var with three different methods: financial institution risk management approach

Journal of Economics and Business - SPOUDAI

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Title Estimation portfolio var with three different methods: financial institution risk management approach
Estimation portfolio var with three different methods: financial institution risk management approach
 
Creator Kiohos, Apostolos
Dimopoulos, Aris
 
Subject —
Financial risk management; Value at risk; Financial institutionsEconomic forecasting; European Wound Management Association
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Description Value at Risk (VaR) technique is very important for the measurement and control of market,
credit and also operational risks. VaR has become an essential tool for financial institution
risk management. VaR forecasts of financial instruments are also of great importance. The fact
that volatility seems to cluster over time in a predictable way has very important implications for
investors, risk managers and financial institutions. In order to generate daily VaR forecasts of
equity portfolios for S&P 500, FTSE ALL SHARE and NIKKEI 500 and of over ten-years
Goverment bond portfolios for US and the UK we use the exponentially weighted moving average
(EWMA). EWMA model emphasizes in most resent observations by assigning heavier
weights to them than to those from the distant past. In the latter EWMA estimates are used as
inputs in three VaR estimation methods in order to produce forecasts based on each one of
them. The three methods are: the Variance Covariance approach used by JP Morgan Risk Metrics,
the Historical Simulation approach and the Hybrid method. Finally we use six backtesting
techniques for the validation of the estimation and the evaluation of the forecasting performance.
The results indicate that Historical Simulation out performs the other two competing approaches
with close second the Risk Metrics approach.
 
Publisher University of Piraeus
 
Contributor —
 
Date 2007-03-15
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
—
 
Format application/pdf
 
Identifier http://spoudai.unipi.gr/index.php/spoudai/article/view/1207
 
Source SPOUDAI - Journal of Economics and Business; Vol 54, No 2 (2004); 59-83
2241-424X
1105-8919
 
Language eng
 
Relation http://spoudai.unipi.gr/index.php/spoudai/article/view/1207/1286
 
Rights Copyright (c) 2007 SPOUDAI - Journal of Economics and Business