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The Best of Two Worlds—Combining Conditional Volatility Models with Extreme Value Theory to Calculate Value at Risk

Kjellson, Benjamin LU and Koskinen Rosemarin, Simon LU (2012) NEKH01 20112
Department of Economics
Abstract
We compare Value at Risk estimates from an AR(1)-GARCH(1,1) model with t- or normally distributed innovations, to estimates from an AR(1)-GARCH(1,1) model where the Peak-Over-Threshold method is applied to the tails of the innovations. Using the Christoffersen backtest, we find that the performance of the second type of model is superior to the first, particularly at high confidence levels for the VaR estimate.
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author
Kjellson, Benjamin LU and Koskinen Rosemarin, Simon LU
supervisor
organization
course
NEKH01 20112
year
type
M2 - Bachelor Degree
subject
keywords
Value At Risk, Extreme Value Theory, Conditional Heteroskedasticity, Backtesting
language
English
id
2295998
date added to LUP
2012-02-13 13:20:39
date last changed
2012-02-13 13:20:39
@misc{2295998,
  abstract     = {We compare Value at Risk estimates from an AR(1)-GARCH(1,1) model with t- or normally distributed innovations, to estimates from an AR(1)-GARCH(1,1) model where the Peak-Over-Threshold method is applied to the tails of the innovations. Using the Christoffersen backtest, we find that the performance of the second type of model is superior to the first, particularly at high confidence levels for the VaR estimate.},
  author       = {Kjellson, Benjamin and Koskinen Rosemarin, Simon},
  keyword      = {Value At Risk,Extreme Value Theory,Conditional Heteroskedasticity,Backtesting},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Best of Two Worlds—Combining Conditional Volatility Models with Extreme Value Theory to Calculate Value at Risk},
  year         = {2012},
}