Value-at-risk for the long and short trading position with the Pearson type-IV distribution

Stavros Stavroyiannis, Ilias Makris, Vasilis Nikolaidis and Leonidas Zarangas

Global Business and Economics Review, 2013, vol. 15, issue 1, 14-27

Abstract: We examine the value-at-risk where the volatility and returns are modelled via a typical GARCH(1,1) model and the innovations process is the Pearson type-IV distribution. As case studies, we examine the NASDAQ and FTSE100 indices from 12-Dec-1984 to 21-Dec-2000. The model is fitted to the data via maximisation of the logarithm of the maximum likelihood estimator. In sample backtesting is performed by the success-failure ratio, the Kupiec p-test, the Christoffersen tests, the expected shortfall, and the DQ test of Engle and Manganelli. The results indicate that the Pearson type-IV distribution gives better results compared with the skewed student distribution.

Keywords: financial markets; econometrics; value-at-risk; Pearson distribution; VAR; long trading positions; short trading positions; volatility; returns; modelling; GARCH model; NASDAQ; FTSE100. (search for similar items in EconPapers)
Date: 2013
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