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EVALUATING MEASURES OF MARKET RISK IN CIRCUMSTANCES OF GLOBAL FINANCIAL CRISIS – EMPIRICAL EVIDENCE FROM FIVE COUNTRIES

CBU International Conference on Innovation in Science and Education

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Title EVALUATING MEASURES OF MARKET RISK IN CIRCUMSTANCES OF GLOBAL FINANCIAL CRISIS – EMPIRICAL EVIDENCE FROM FIVE COUNTRIES
 
Creator Terzić, Ivica; Singidunum University
Milojević, Marko; Singidunum University
 
Description The purpose of this paper is to evaluate performance of value-at-risk (VaR) produced by two risk models: historical simulation and Risk Metrics. We perform three backtest: unconditional coverage, independence and conditional coverage. We present results on both VaR 1% and VaR 5% on a one-day horizon for the following indices: S&P 500, DAX, SAX, PX and Belex 15. Our results show that Historical simulation 500 days rolling window approach satisfies unconditional coverage for all tested indices, while Risk Metrics has many rejection cases. On the other hand Risk Metrics model satisfies independence backtest for three indices, while Historical simulation has rejected more times. Based on our strong criteria to accept accuracy of VaR models only if both unconditional coverage and independence properties are satisfied, results indicate that during the crisis period all tested VaR models underestimate the true level of market risk exposure.
 
Publisher Central Bohemia University, o.p.s.
 
Contributor —
 
Date 2013-06-30
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format application/pdf
 
Identifier http://ojs.journals.cz/index.php/CBUConference2013/article/view/17
10.12955/cbup.2013.17
 
Source CBU International Conference Proceedings; Vol 1 (2013): CBU International Conference Proceedings 2013; pp. 75-81
1805-9961
1805-997X
 
Language eng
 
Relation http://ojs.journals.cz/index.php/CBUConference2013/article/view/17/19
 
Rights Copyright (c) 2013 Ivica Terzić, Marko Milojević
https://creativecommons.org/licenses/by/3.0/