Implications of Volatility Modeling on Quantifying Market Risk

Maja Martinovic

Ekonomika, Journal for Economic Theory and Practice and Social Issues, 2013, vol. 59, issue 01

Abstract: Due to fluctuations in financial assets, market risk represents the most prevalent risk in the category of financial risks. The process of market risk management includes its quantification and control. Measure that quantifies the maximum potential loss in a given period of time with a certain statistical confidence level is the value at risk, VaR. Treating financial assets prices as a time series that could be described as a random walk with drift or returns of financial assets as a white noise typically underestimates the value at risk. Back testing shows that the estimation of the risk with variance modeled as a generalized conditional autogressive heteroscedastic (GARCH) model is a reliable method for a quantification of risk.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ags:sereko:288654

DOI: 10.22004/ag.econ.288654

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