Are realized volatility models good candidates for alternative Value at Risk prediction strategies?
Dimitrios Louzis (),
Spyros Xanthopoulos-Sisinis and
Apostolos P. Refenes
MPRA Paper from University Library of Munich, Germany
In this paper, we assess the Value at Risk (VaR) prediction accuracy and efficiency of six ARCH-type models, six realized volatility models and two GARCH models augmented with realized volatility regressors. The α-th quantile of the innovation’s distribution is estimated with the fully parametric method using either the normal or the skewed student distributions and also with the Filtered Historical Simulation (FHS), or the Extreme Value Theory (EVT) methods. Our analysis is based on two S&P 500 cash index out-of-sample forecasting periods, one of which covers exclusively the recent 2007-2009 financial crisis. Using an extensive array of statistical and regulatory risk management loss functions, we find that the realized volatility and the augmented GARCH models with the FHS or the EVT quantile estimation methods produce superior VaR forecasts and allow for more efficient regulatory capital allocations. The skewed student distribution is also an attractive alternative, especially during periods of high market volatility.
Keywords: High frequency intraday data; Filtered Historical Simulation; Extreme Value Theory; Value-at-Risk forecasting; Financial crisis. (search for similar items in EconPapers)
JEL-codes: C13 C53 G32 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets, nep-for, nep-ore and nep-rmg
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