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Forecasting Exchange Rate Value-at-Risk and Expected Shortfall: A GARCH-EVT Approach

Titov, Christoffer LU (2022) NEKN02 20221
Department of Economics
Abstract
This thesis aims to investigate the accuracy of Value-at-Risk and Expected Shortfall forecasts of various GARCH-type models based on five currency exchange rate pairs. The GARCH models are employed under different conditional distributional assumptions, and extended using the two-stage Extreme Value Theory (EVT) approach of McNeil and Frey (2000). The forecasts are evaluated through simulation using the backtesting methodologies of Christoffersen (1998) and Acerbi & Szekely (2014). We find that forecasts of models assuming a skewed t-distribution are rejected the
least number of times. Furthermore, the usefulness of the EVT approach of McNeil and Frey (2000) appears to be dependent on the distributional assumption as well as the choice... (More)
This thesis aims to investigate the accuracy of Value-at-Risk and Expected Shortfall forecasts of various GARCH-type models based on five currency exchange rate pairs. The GARCH models are employed under different conditional distributional assumptions, and extended using the two-stage Extreme Value Theory (EVT) approach of McNeil and Frey (2000). The forecasts are evaluated through simulation using the backtesting methodologies of Christoffersen (1998) and Acerbi & Szekely (2014). We find that forecasts of models assuming a skewed t-distribution are rejected the
least number of times. Furthermore, the usefulness of the EVT approach of McNeil and Frey (2000) appears to be dependent on the distributional assumption as well as the choice of quintile. No conditional volatility model is consistently found to be superior to the others. (Less)
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author
Titov, Christoffer LU
supervisor
organization
course
NEKN02 20221
year
type
H1 - Master's Degree (One Year)
subject
keywords
GARCH, Extreme Value Theory, Value-at-Risk, Expected Shortfall, Exchange Rate Volatility
language
English
id
9098265
date added to LUP
2022-10-10 09:35:57
date last changed
2022-10-10 09:35:57
@misc{9098265,
  abstract     = {{This thesis aims to investigate the accuracy of Value-at-Risk and Expected Shortfall forecasts of various GARCH-type models based on five currency exchange rate pairs. The GARCH models are employed under different conditional distributional assumptions, and extended using the two-stage Extreme Value Theory (EVT) approach of McNeil and Frey (2000). The forecasts are evaluated through simulation using the backtesting methodologies of Christoffersen (1998) and Acerbi & Szekely (2014). We find that forecasts of models assuming a skewed t-distribution are rejected the 
least number of times. Furthermore, the usefulness of the EVT approach of McNeil and Frey (2000) appears to be dependent on the distributional assumption as well as the choice of quintile. No conditional volatility model is consistently found to be superior to the others.}},
  author       = {{Titov, Christoffer}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Forecasting Exchange Rate Value-at-Risk and Expected Shortfall: A GARCH-EVT Approach}},
  year         = {{2022}},
}