Markov-Switching GARCH Modelling of Value-at-Risk
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Rasoul Sajjad
This paper proposes an asymmetric Markov regime-switching (MS) GARCH model to estimate value-at-risk (VaR) for both long and short positions. This model improves on existing VaR methods by taking into account both regime change and skewness or leverage effects. The performance of our MS model and single-regime models is compared through an innovative backtesting procedure using daily data for UK and US market stock indices. The findings from exceptions and regulatory-based tests indicate the MS-GARCH specifications clearly outperform other models in estimating the VaR for both long and short FTSE positions and also do quite well for S&P positions. We conclude that ignoring skewness and regime changes has the effect of imposing larger than necessary conservative capital requirements.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Artikel in diesem Heft
- Article
- Non-Linear Models: Where Do We Go Next - Time Varying Parameter Models?
- A Powerful Test for Linearity When the Order of Integration is Unknown
- Optimal Test for Markov Switching GARCH Models
- Bayesian Simultaneous Determination of Structural Breaks and Lag Lengths
- Is the Backward-Looking Component Important in a New Keynesian Phillips Curve?
- Reconsideration of the Markov Chain Evidence on Unemployment Rate Asymmetry
- Markov-Switching GARCH Modelling of Value-at-Risk
- Threshold Adjustment of Deviations from the Law of One Price
Artikel in diesem Heft
- Article
- Non-Linear Models: Where Do We Go Next - Time Varying Parameter Models?
- A Powerful Test for Linearity When the Order of Integration is Unknown
- Optimal Test for Markov Switching GARCH Models
- Bayesian Simultaneous Determination of Structural Breaks and Lag Lengths
- Is the Backward-Looking Component Important in a New Keynesian Phillips Curve?
- Reconsideration of the Markov Chain Evidence on Unemployment Rate Asymmetry
- Markov-Switching GARCH Modelling of Value-at-Risk
- Threshold Adjustment of Deviations from the Law of One Price
