Open AccessRolling window VaR: an EVT approach
Author(s) -
A. Rusu
Publication year - 2020
Publication title -
review of economic studies and research "virgil madgearu"
Language(s) - English
Resource type - Journals
ISSN - 2069-0606
DOI - 10.24193/rvm.2020.13.66
Subject(s) - extreme value theory , generalized pareto distribution , econometrics , value at risk , window (computing) , distribution (mathematics) , economics , value (mathematics) , generalized extreme value distribution , stock market , computer science , mathematics , statistics , finance , risk management , geography , mathematical analysis , context (archaeology) , archaeology , operating system
In this study, a method of estimating value-at-risk is proposed. This method combines elements of extreme value theory (EVT), the APARCH model (Ding et al. 1993) and the rolling window method. The research was conducted using 20 stock market indexes worldwide during 2006-2019. Value-at-risk was estimated via 12 competing models which were evaluated using 5 tests. The back testing results indicate that the best model was the one which takes into consideration the asymmetric character of financial data (APARCH with skewed normal distribution), the Generalized Pareto Distribution for modeling the tail of the financial returns distribution and the rolling window approach. The methodologies discussed in this paper could provide a useful tool for both financial entities and regulatory authorities.