Risk Management in the Financial Services Sector—Applicability and Performance of VaR Models in Pakistan
Syeda Rabab Mudakkar and
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Syeda Rabab Mudakkar: Centre for Mathematics and Statistical Sciences, Lahore School of Economics, Lahore
The Pakistan Development Review, 2012, vol. 51, issue 4, 399-417
Sound risk management practices by financial institution are critical to the stability of the institutions and to the sustainability of economic growth. We evaluate market risk based on the Value-at-Risk (VaR) approach for the KSE100 index return series over the period January 2001–June 2012. We estimate the conditional quantiles of the loss distribution under different distributional assumptions. Our back-testing results show that the procedure based on the Extreme Value Theory (EVT) performs better than methods which ignore the heavy tails of the innovations or the heteroskadasticity in returns. Analysis of Pre- and Post-Global Financial Crisis suggests that EVT based VaR measures which incorporate market dynamics may be helpful in managing market risk.
Keywords: Value at Risk; GARCH Models; Extreme Value Theory; Back-testing; Global Financial Crisis (search for similar items in EconPapers)
JEL-codes: G10 G17 C16 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:pid:journl:v:51:y:2012:i:4:p:399-417
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