Nonparametric forward-looking value-at-risk
(2014) In Journal of Risk 16(4). p.103-123- Abstract
- This paper proposes a new model for computing value-at-risk forecasts. The model is fully nonparametric and easy to implement. Further, it incorporates information about the market's perceived uncertainty about the future. The forward-looking information is obtained from the option market via the Chicago Board Options Exchange's implied volatility index (VIX). Using S&P 500 data from 1990 to 2010 we find that the use of option implied volatility compares favorably with generalized autoregressive conditional heteroscedasticity (GARCH)-type models in terms of forecast performance. By comparing the model primarily used in the banking sector to our new model, we find that a financial institution using our model has on average a lower... (More)
- This paper proposes a new model for computing value-at-risk forecasts. The model is fully nonparametric and easy to implement. Further, it incorporates information about the market's perceived uncertainty about the future. The forward-looking information is obtained from the option market via the Chicago Board Options Exchange's implied volatility index (VIX). Using S&P 500 data from 1990 to 2010 we find that the use of option implied volatility compares favorably with generalized autoregressive conditional heteroscedasticity (GARCH)-type models in terms of forecast performance. By comparing the model primarily used in the banking sector to our new model, we find that a financial institution using our model has on average a lower market induced capital requirement (MCR). However, during the time period leading up to the financial crisis our model gives a 40% higher MCR. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/5069102
- author
- Nossman, Marcus and Vilhelmsson, Anders LU
- organization
- publishing date
- 2014
- type
- Contribution to journal
- publication status
- published
- subject
- in
- Journal of Risk
- volume
- 16
- issue
- 4
- pages
- 103 - 123
- publisher
- Risk Publications
- external identifiers
-
- wos:000348566700005
- scopus:84973544755
- ISSN
- 1465-1211
- language
- English
- LU publication?
- yes
- id
- eeffc1da-36f8-4f4b-982e-e2b4e81c4546 (old id 5069102)
- alternative location
- http://www.kyos.com/news-highlights/non-parametric-forward-looking-value-at-risk/
- date added to LUP
- 2016-04-01 09:55:30
- date last changed
- 2022-01-25 18:03:59
@article{eeffc1da-36f8-4f4b-982e-e2b4e81c4546,
abstract = {{This paper proposes a new model for computing value-at-risk forecasts. The model is fully nonparametric and easy to implement. Further, it incorporates information about the market's perceived uncertainty about the future. The forward-looking information is obtained from the option market via the Chicago Board Options Exchange's implied volatility index (VIX). Using S&P 500 data from 1990 to 2010 we find that the use of option implied volatility compares favorably with generalized autoregressive conditional heteroscedasticity (GARCH)-type models in terms of forecast performance. By comparing the model primarily used in the banking sector to our new model, we find that a financial institution using our model has on average a lower market induced capital requirement (MCR). However, during the time period leading up to the financial crisis our model gives a 40% higher MCR.}},
author = {{Nossman, Marcus and Vilhelmsson, Anders}},
issn = {{1465-1211}},
language = {{eng}},
number = {{4}},
pages = {{103--123}},
publisher = {{Risk Publications}},
series = {{Journal of Risk}},
title = {{Nonparametric forward-looking value-at-risk}},
url = {{http://www.kyos.com/news-highlights/non-parametric-forward-looking-value-at-risk/}},
volume = {{16}},
year = {{2014}},
}