Range-based models in estimating value-at-risk (VaR)

Nikkin L. Beronilla and Dennis Mapa ()
Additional contact information
Nikkin L. Beronilla: Institute for Popular Democracy

Philippine Review of Economics, 2008, vol. 45, issue 2, 87-99

Abstract: This paper introduces new methods of estimating Value-at-Risk (VaR) using range-based GARCH (general autoregressive conditional heteroskedasticity) models. These models, which could be based on either the Parkinson range or the Garman-Klass range, are applied to ten stock market indices of selected countries in the Asia-Pacific region. The results are compared using the traditional methods such as the econometric method based on the autoregressive moving average (ARMA)-GARCH models and RiskMetricsTM. The performance of the different models is assessed using the out-ofsample VaR forecasts. Series of likelihood ratio (LR) tests—namely, LR of unconditional coverage (LRuc), LR of independence (LRind), and LR of conditional coverage (LRcc)—are performed for comparison. The result of the assessment shows that the model based on the Parkinson range GARCH (1,1) with Student’s t distribution, is the best-performing model on the ten stock market indices. It has a failure rate, defined as the percentage of actual return that is smaller than the one-step-ahead VaR forecast, of zero in nine out of ten stock market indices. This paper finds that range-based GARCH models are good alternatives in modeling volatility and in estimating VaR.

Keywords: value-at-risk; Parkinson range; Garman-Klass range; range-based GARCH (search for similar items in EconPapers)
JEL-codes: C01 C13 (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://pre.econ.upd.edu.ph/index.php/pre/article/view/178/643 (application/pdf)

Related works:
Working Paper: Range-Based Models in Estimating Value-at-Risk (VaR) (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:phs:prejrn:v:45:y:2008:i:2:p:87-99

Access Statistics for this article

More articles in Philippine Review of Economics from University of the Philippines School of Economics and Philippine Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by HR Rabe ().