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Value-at-Risk with Application of DCC-GARCH Model

Tomas Meluzin (), Marek Zinecker (), Michal Pietrzak (), Marcin Faldzinski () and Adam Balcerzak ()
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Tomas Meluzin: Brno University of Technology, Czech Republic
Marek Zinecker: Brno University of Technology, Czech Republic
Marcin Faldzinski: Nicolaus Copernicus University, Poland

No 35/2016, Working Papers from Institute of Economic Research

Abstract: The article concentrates on modelling of volatility of capital markets and estimation of Value-at-Risk. The aim of the article is the description of volatility and interdependencies among three indices: WIG (Poland), DAX (Germany) and DJIA (United States). In order to measure the volatility and strength of interdependencies DCC-GARCH-In model was used, where an impact of the volatility of other markets is additionally taken into consideration during construction of the model. The conducted research for the years 2000-2012 confirmed the presence of interactions among selected capital markets. Next, the model DCC-GARCH-In was applied for evaluation of Value-at-Risk and the obtained measure was assessed with application of backtesting procedure. The results confirm that including volatility in the variance in DCC-GARCH-In model enables better assessment of VaR measure.

Keywords: capital market; value-at-risk; backtesting; DCC-GARCH model; conditional variance (search for similar items in EconPapers)
JEL-codes: G15 C58 (search for similar items in EconPapers)
Date: 2016-09, Revised 2016-09
New Economics Papers: this item is included in nep-ets and nep-rmg
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