Asymmetric Volatility Effects in Risk Management: An Empirical Analysis using a Stock Index Futures
No 2020-10, Working Papers from Banco de México
In this research paper ARCH-type models and option implied volatilities (IV) are applied in order to estimate the Value-at-Risk (VaR) of a stock index futures portfolio for several time horizons. The relevance of the asymmetries in the estimated volatility estimation is considered. The empirical analysis is performed on futures contracts of both the Standard and Poors 500 Index and the Mexican Stock Exchange. According to the results, the IV model is superior in terms of precision compared to the ARCH-type models. Under both methodologies there are relevant statistical gains when asymmetries are included. The referred gains range from 4 to around 150 basis points of minimum capital risk requirements. This research documents the importance of taking asymmetric effects (leverage effects) into account in volatility forecasts when it comes to risk management analysis.
Keywords: Asymmetric volatility; Backtesting; GARCH; TARCH; Implied volatility; Stock index futures; Value at Risk; Mexico (search for similar items in EconPapers)
JEL-codes: C15 C22 C53 E31 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets, nep-fmk, nep-mac, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.banxico.org.mx/publications-and-press/ ... -18C50E59A719%7D.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bdm:wpaper:2020-10
Access Statistics for this paper
More papers in Working Papers from Banco de México Contact information at EDIRC.
Bibliographic data for series maintained by Dirección de Sistemas ().