An Empirical Investigation of Value-at-Risk in Long and Short Trading Positions

Sofie Kulp-Tåg ()
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Sofie Kulp-Tåg: Swedish School of Economics and Business Administration, Postal: Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland

No 526, Working Papers from Hanken School of Economics

Abstract: This paper uses the Value-at-Risk approach to define the risk in both long and short trading positions. The investigation is done on some major market indices(Japanese, UK, German and US). The performance of models that takes into account skewness and fat-tails are compared to symmetric models in relation to both the specific model for estimating the variance, and the distribution of the variance estimate used as input in the VaR estimation. The results indicate that more flexible models not necessarily perform better in predicting the VaR forecast; the reason for this is most probably the complexity of these models. A general result is that different methods for estimating the variance are needed for different confidence levels of the VaR, and for the different indices. Also, different models are to be used for the left respectively the right tail of the distribution.

Keywords: Value-at-Risk; asymmetry; Exponential GARCH; Asymmetric Power ARCH; long-trading; short-trading (search for similar items in EconPapers)
Pages: 37 pages
Date: 2007-04-13
New Economics Papers: this item is included in nep-for and nep-rmg
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