GARCH in VaR - which model is best?
Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
The purpose of this thesis is to identify the best volatility model for Value-at-Risk (VaR) estimations. We estimate 1 % and 5 % VaR figures for Nordic indices and stocks by using two symmetrical and two asymmetrical GARCH models under different error distributions. Out-of-sample volatility forecasts are produced using a 500 day rolling window estimation on data covering January 2007 to December 2014. The VaR estimates are thereafter evaluated through Kupiec´s test and Christoffersen´s test in order to find the best model. The results suggest that asymmetrical models perform better than symmetrical models albeit the simple ARCH is often good enough for 1 % VaR estimates.
Place, publisher, year, edition, pages
Value-at-Risk, ARCH/GARCH forecasting, Backtesting, Kupiec test, Christoffersen test
IdentifiersURN: urn:nbn:se:uu:diva-243048OAI: oai:DiVA.org:uu-243048DiVA: diva2:785844
Forsberg, Lars, Universitetslektor
Guvå, Tomas, Universitetsadjunkt