Forecasting Short-Run Inflation Volatility using Futures Prices: An Empirical Analysis from a Value at Risk Perspective

Guillermo Benavides ()
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Guillermo Benavides: Banco de México

Revista de Administración, Finanzas y Economía (Journal of Management, Finance and Economics), 2010, vol. 4, issue 2, 1-27

Abstract: In this research paper, ARCH models are applied in order to estimate the Value-at-Risk (VaR) of an inflation-index futures portfolio for several time-horizons. The empirical analysis is carried out for Mexican inflation-indexed futures traded at the Mexican Derivatives Exchange (MEXDER). To analyse the VaR with time horizons of more than one trading day bootstrapping simulations were applied. The results show that these models are relatively accurate for time horizons of one trading day. However, the volatility persistence of ARCH models is reflected with relatively high VaR estimates for longer time horizons. This is considered undesirable given that an unnecessary amount of capital must be set aside in order to meet Minimum Capital Risk Requirements for a futures portfolio. By estimating confidence intervals in the VaR, it is possible to have certain confidence about the future range of inflation (or extreme inflation values) for a specified time horizon

Keywords: Volatilidad asimétrica; remuestreo; modelo GARCH; modelo TARCH; inflación; futuros indizados a la inflación; México; Valor en Riesgo; persistencia en la volatilidad (search for similar items in EconPapers)
JEL-codes: C15 C22 C53 E31 E37 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ega:rafega:201007

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