Robust Value at Risk Prediction

Loriano Mancini and Fabio Trojani ()
Additional contact information
Loriano Mancini: University of Zurich

No 07-31, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We propose a general robust semiparametric bootstrap method to estimate conditional predictive distributions of GARCH-type models. Our approach is based on a robust estimator for the parameters in GARCH-type models and a robustified resampling method for standardized GARCH residuals, which controls the bootstrap instability due to influential observations in the tails of standardized GARCH residuals. Monte Carlo simulation shows that our method consistently provides lower VaR forecast errors, often to a large extent, and in contrast to classical methods never fails validation tests at usual significance levels. We test extensively our approach in the context of real data applications to VaR prediction for market risk, and find that only our robust procedure passes all validation tests at usual confidence levels. Moreover, the smaller tail estimation risk of robust VaR forecasts implies VaR prediction intervals that can be nearly 20% narrower and 50% less volatile over time. This is a further desirable property of our method, which allows to adapt risky positions to VaR limits more smoothly and thus more efficiently.

Keywords: Backtesting; M-estimator; Extreme Value Theory; Breakdown Point. (search for similar items in EconPapers)
JEL-codes: C14 C15 C23 C59 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2007-10
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fmk, nep-for and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://ssrn.com/abstract=1020053 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 410 Gone (http://ssrn.com/abstract=1020053 [301 Moved Permanently]--> https://ssrn.com/abstract=1020053 [301 Moved Permanently]--> https://www.ssrn.com/abstract=1020053 [302 Moved Temporarily]--> https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1020053)

Related works:
Journal Article: Robust Value at Risk Prediction (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0731

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().