VaR for a portfolio of Swedish Index-bonds - An empiricial evaluation
(2011) NEKM07 20111Department of Economics
- Abstract
- Purpose: The purpose of this paper is to empirically evaluate the performance of seven different methods that are used when estimating Value-at-Risk for a portfolio of Swedish index-bonds with different maturities. As a supplementary objective, the paper tries to determine the history that one needs to account for when calculating VaR.
Methodology: In order to calculate the VaR, a portfolio consisting of five Swedish index-bonds is constructed. For this portfolio, one-day VaR-estimates are calculated using three different windows and seven methods; Basic historical simulation, Age-weighted historical simulation, Volatility-weighted historical simulation, Normal distribution, Student’s t–distribution, Asymmetric slope and Symmetric... (More) - Purpose: The purpose of this paper is to empirically evaluate the performance of seven different methods that are used when estimating Value-at-Risk for a portfolio of Swedish index-bonds with different maturities. As a supplementary objective, the paper tries to determine the history that one needs to account for when calculating VaR.
Methodology: In order to calculate the VaR, a portfolio consisting of five Swedish index-bonds is constructed. For this portfolio, one-day VaR-estimates are calculated using three different windows and seven methods; Basic historical simulation, Age-weighted historical simulation, Volatility-weighted historical simulation, Normal distribution, Student’s t–distribution, Asymmetric slope and Symmetric absolute value. The methods are evaluated using the Kupiec’s and Christoffersen’s test for unconditional and conditional coverage.
Conclusion: The empirical results show that neither method is able to exactly capture the amount of acceptable exceedances. Though, it is evident that several of the estimated methods are accepted according to the Basel Rules. Also, it can be seen that the volatility-weighted approach is the most suitable method to use when calculating VaR for a portfolio of Swedish Index-bonds during the investigated period. The efficient window of historical observations is deemed to be equal to one year. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/2167277
- author
- Johansson, Magnus LU
- supervisor
- organization
- course
- NEKM07 20111
- year
- 2011
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- Value-at-Risk, Conditional Autoregressive Value-at-Risk, Age-weighted historical simulation, Volatility-weighted historical simulation, GARCH (1, 1), Normal distribution, Student’s t-distribution, Christoffersen’s test
- language
- English
- id
- 2167277
- date added to LUP
- 2011-09-27 08:04:42
- date last changed
- 2011-09-27 08:04:42
@misc{2167277, abstract = {{Purpose: The purpose of this paper is to empirically evaluate the performance of seven different methods that are used when estimating Value-at-Risk for a portfolio of Swedish index-bonds with different maturities. As a supplementary objective, the paper tries to determine the history that one needs to account for when calculating VaR. Methodology: In order to calculate the VaR, a portfolio consisting of five Swedish index-bonds is constructed. For this portfolio, one-day VaR-estimates are calculated using three different windows and seven methods; Basic historical simulation, Age-weighted historical simulation, Volatility-weighted historical simulation, Normal distribution, Student’s t–distribution, Asymmetric slope and Symmetric absolute value. The methods are evaluated using the Kupiec’s and Christoffersen’s test for unconditional and conditional coverage. Conclusion: The empirical results show that neither method is able to exactly capture the amount of acceptable exceedances. Though, it is evident that several of the estimated methods are accepted according to the Basel Rules. Also, it can be seen that the volatility-weighted approach is the most suitable method to use when calculating VaR for a portfolio of Swedish Index-bonds during the investigated period. The efficient window of historical observations is deemed to be equal to one year.}}, author = {{Johansson, Magnus}}, language = {{eng}}, note = {{Student Paper}}, title = {{VaR for a portfolio of Swedish Index-bonds - An empiricial evaluation}}, year = {{2011}}, }