English, Article edition: Incorporating the Time-Varying Tail-Fatness into the Historical Simulation Method for Portfolio Value-at-Risk Chu-Hsiung Lin; Chang-Cheng Chang Chien; Sunwu Winfred Chen

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Bookmark: http://trove.nla.gov.au/version/132276
Physical Description
  • article
Language
  • English

Edition details

Title
  • Incorporating the Time-Varying Tail-Fatness into the Historical Simulation Method for Portfolio Value-at-Risk
Author
  • Chu-Hsiung Lin
  • Chang-Cheng Chang Chien
  • Sunwu Winfred Chen
Physical Description
  • article
Notes
  • This study extends the method of Guermat and Harris (2002), the Power EWMA (exponentially weighted moving average) method in conjunction with historical simulation to estimating portfolio Value-at-Risk (VaR). Using historical daily return data of three hypothetical portfolios formed by international stock indices, we test the performance of this modified approach to see if it can improve the precise forecasting capability of historical simulation. We explicitly highlight the extended Power EWMA owns privileged flexibilities to capture time-varying tail-fatness and volatilities of financial returns, and therefore may promote the quality of extreme risk management. Our empirical results, derived from the Kupiec (1995) tests and failure ratios, show that our proposed method indeed offers substantial improvements on capturing dynamic returns distributions, and can significantly enhance the estimation accuracy of portfolio VaR.
  • Value-at-Risk, historical simulation method, power exponentially weighted moving average
  • RePEc:wsi:rpbfmp:v:09:y:2006:i:02:p:257-274
Language
  • English
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