Estimation risk for the VaR of portfolios driven by semi-parametric multivariate models

Christian Francq and Jean-Michel Zakoian

Journal of Econometrics, 2018, vol. 205, issue 2, 381-401

Abstract: Joint estimation of market and estimation risks in portfolios is investigated, when the individual returns follow a semi-parametric multivariate dynamic model and the asset composition is time-varying. Under ellipticity of the conditional distribution, asymptotic theory for the estimation of the conditional Value-at-Risk (VaR) is developed. An alternative method – the Filtered Historical Simulation – which does not rely on ellipticity, is also studied. Asymptotic confidence intervals for the conditional VaR, which allow for simultaneous quantification of the market and estimation risks, are derived. The particular case of minimum variance portfolios is analyzed in more detail. Potential usefulness, feasibility and drawbacks of the two approaches are illustrated via Monte-Carlo experiments and an empirical study based on stock returns.

Keywords: Confidence intervals for VaR; Dynamic portfolio; Elliptical distribution; Filtered historical simulation; Minimum variance portfolio; Model risk; Multivariate GARCH (search for similar items in EconPapers)
JEL-codes: C13 C31 C58 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:205:y:2018:i:2:p:381-401

DOI: 10.1016/j.jeconom.2018.03.018

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