Are GARCH models necessary for Expected Shortfall?
(2017) STAH11 20162Department of Statistics
- Abstract
- Following the Basel Committee on Banking Supervision’s decision to move from Value at Risk to Expected Shortfall, risk managers will have to alter their methods for reporting risk. This paper sheds light on the question of which volatility models and distributional assumptions that works best for this new method of risk measurement by evaluating forecasts for the Swedish index OMXS30. The empirical results indicate that the choice of model becomes less important for Expected Shortfall than for Value at Risk, and that the Student’s t distributed Value at Risk model improves accuracy compared to a normally distributed model. The EWMA model, proposed by the RiskMetrics Group, as well as the IGARCH and GJR-GARCH models generates adequate Value... (More)
- Following the Basel Committee on Banking Supervision’s decision to move from Value at Risk to Expected Shortfall, risk managers will have to alter their methods for reporting risk. This paper sheds light on the question of which volatility models and distributional assumptions that works best for this new method of risk measurement by evaluating forecasts for the Swedish index OMXS30. The empirical results indicate that the choice of model becomes less important for Expected Shortfall than for Value at Risk, and that the Student’s t distributed Value at Risk model improves accuracy compared to a normally distributed model. The EWMA model, proposed by the RiskMetrics Group, as well as the IGARCH and GJR-GARCH models generates adequate Value at Risk estimates at the 97.5 percent confidence level. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/8902182
- author
- Berggren, Erik LU
- supervisor
- organization
- course
- STAH11 20162
- year
- 2017
- type
- M2 - Bachelor Degree
- subject
- keywords
- Forecasting, Backtesting, Value at Risk, Expected Shortfall, GARCH models
- language
- English
- id
- 8902182
- date added to LUP
- 2017-02-10 11:09:29
- date last changed
- 2017-02-10 11:09:29
@misc{8902182, abstract = {{Following the Basel Committee on Banking Supervision’s decision to move from Value at Risk to Expected Shortfall, risk managers will have to alter their methods for reporting risk. This paper sheds light on the question of which volatility models and distributional assumptions that works best for this new method of risk measurement by evaluating forecasts for the Swedish index OMXS30. The empirical results indicate that the choice of model becomes less important for Expected Shortfall than for Value at Risk, and that the Student’s t distributed Value at Risk model improves accuracy compared to a normally distributed model. The EWMA model, proposed by the RiskMetrics Group, as well as the IGARCH and GJR-GARCH models generates adequate Value at Risk estimates at the 97.5 percent confidence level.}}, author = {{Berggren, Erik}}, language = {{eng}}, note = {{Student Paper}}, title = {{Are GARCH models necessary for Expected Shortfall?}}, year = {{2017}}, }