A spectral analysis based heteroscedastic model for the estimation of value at risk

Yang Zhao

Journal of Risk Finance, 2018, vol. 19, issue 3, 295-314

Abstract: Purpose - This paper aims to focus on a better model to capture the trait of varying volatility in various financial time series, as well as to obtain reliable estimate of value at risk (VaR). Design/methodology/approach - The typical methods in spectral analysis are used to obtain the sample of conditional mean, conditional variance and residual term. The generalized regression neural network is used to establish a time-varying non-linear model, and the non-parametric kernel density estimation method is applied for the estimation of VaR. Findings - The proposed model is able to follow the heteroscedastic characteristic which is common in financial time series, and the estimated VaR is satisfactory. Practical implications - The analysis method in this study allows the hedgers, bankers, financial analysts as well as economists to draw a better inference from financial time series. Also, relatively more precise estimate of the VaR value for a certain kind of financial asset is available. The model with its derived estimates would definitely help in developing other models. Originality/value - Up-to-date, the study in literature which models financial time serial from the viewpoint of spectral analysis is rare to see. Thus, the proposed model, along with a comprehensive empirical study which reveals desirable result for the estimation of VaR would enrich the related researches at present.

Keywords: GRNN; VaR; Hilbert transform; Kernel density estimation; Wavelet transform (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:jrf-01-2017-0012

DOI: 10.1108/JRF-01-2017-0012

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