Measuring daily Value-at-Risk of SSEC index: A new approach based on multifractal analysis and extreme value theory

Yu Wei, Wang Chen and Yu Lin

Physica A: Statistical Mechanics and its Applications, 2013, vol. 392, issue 9, 2163-2174

Abstract: Recent studies in the econophysics literature reveal that price variability has fractal and multifractal characteristics not only in developed financial markets, but also in emerging markets. Taking high-frequency intraday quotes of the Shanghai Stock Exchange Component (SSEC) Index as example, this paper proposes a new method to measure daily Value-at-Risk (VaR) by combining the newly introduced multifractal volatility (MFV) model and the extreme value theory (EVT) method. Two VaR backtesting techniques are then employed to compare the performance of the model with that of a group of linear and nonlinear generalized autoregressive conditional heteroskedasticity (GARCH) models. The empirical results show the multifractal nature of price volatility in Chinese stock market. VaR measures based on the multifractal volatility model and EVT method outperform many GARCH-type models at high-risk levels.

Keywords: Multifractal analysis; Volatility measurement; Extreme value theory; Value-at-Risk; Backtesting (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:392:y:2013:i:9:p:2163-2174

DOI: 10.1016/j.physa.2013.01.032

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