Cayton, Peter Julian A. and Mapa, Dennis S. (2012): Time-varying conditional Johnson SU density in value-at-risk (VaR) methodology.
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Stylized facts on financial time series data are the volatility of returns that follow non-normal conditions such as leverage effects and heavier tails leading returns to have heavier magnitudes of extreme losses. Value-at-risk is a standard method of forecasting possible future losses in investments. A procedure of estimating value-at-risk using time-varying conditional Johnson SU¬ distribution is introduced and assessed with econometric models. The Johnson distribution offers the ability to model higher parameters with time-varying structure using maximum likelihood estimation techniques. Two procedures of modeling with the Johnson distribution are introduced: joint estimation of the volatility and two-step procedure where estimation of the volatility is separate from the estimation of higher parameters. The procedures were demonstrated on Philippine-foreign exchange rates and the Philippine stock exchange index. They were assessed with forecast evaluation measures with comparison to different value-at-risk methodologies. The research opens up modeling procedures where manipulation of higher parameters can be integrated in the value-at-risk methodology.
|Item Type:||MPRA Paper|
|Original Title:||Time-varying conditional Johnson SU density in value-at-risk (VaR) methodology|
|Keywords:||Time Varying Parameters; GARCH models; Nonnormal distributions; Risk Management|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
|Depositing User:||Dennis S. Mapa|
|Date Deposited:||26. Jan 2012 23:14|
|Last Modified:||27. Jul 2015 17:25|
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