Methodology and Implementation of Value-at-Risk Measures in Emerging Fixed-Income Markets with Infrequent Trading

Gonzalo Cortazar, Alejandro Bernales and Diether Beuermann
Additional contact information
Gonzalo Cortazar: Pontificia Universidad Catolica de Chile
Alejandro Bernales: Inter-American Development Bank

Finance from University Library of Munich, Germany

Abstract: This paper deals with the issue of calculating daily Value-at-Risk (VaR) measures within an environment of thin trading. Our approach focuses on fixed income portfolios with low frequency of transactions in which the missing data problem makes VaR measures difficult to calculate. We propose and implement a methodology to calculate VaR measures with an incomplete panel of prices. The methodology is composed of three phases: Phase I, generates a complete panel of prices, using a term-structure dynamic model of interest rates. Phase II, calculates portfolio VaR measures with several alternative methods using the complete panel data generated in phase I. Phase III, shows how to back-test the VaR measures obtained in phase II using the original incomplete panel of prices. We provide an empirical implementation of the methodology for the Chilean fixed income market. The proposed methodology seems to provide reliable VaR measures for thinly traded markets addressing an important issue for financial risk management in emerging markets.

Keywords: Risk; Value-at-Risk; Fixed Income; Incomplete Panels; Term- Structure Dynamic Models; Extreme Value; GARCH; Kalman Filter. (search for similar items in EconPapers)
JEL-codes: C51 C52 G11 G15 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2005-12-28
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-fmk and nep-rmg
Note: Type of Document - pdf; pages: 49
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0512/0512030.pdf (application/pdf)

Related works:
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:wpa:wuwpfi:0512030

Access Statistics for this paper

More papers in Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ().