Affiliation:
1. School of Economics, South-Central University for Nationalities, Wuhan 430074, China
2. School of Economics, Jinan University, Guangzhou 510632, China
Abstract
With increasing extremal risk, VaR has been becoming a popular methodology because it is easy to interpret and calculate. For comparing the performance of extant VaR models, this paper makes an empirical analysis of five VaR models: simple VaR, VaR based on RiskMetrics, VaR based on different distributions of GARCH-N, GARCH-GED, and GARCH-t. We exploit the daily closing prices of the Shanghai Composite Index from January 4, 2010, to April 8, 2020, and divide the entire sample into two periods for empirical analysis. The rolling window is used to update the daily estimation of risk. Based on the failure rates under different significance levels, we test whether a specific VaR model passes the back-testing. The results indicate that all models, except the RiskMetrics model, pass the test at a 5% level. According to the ideal failure rate, only the GARCH-GED model can pass the test at a 1% level. For the Kupiec confidence interval, the GARCH-t model can also pass the back-testing at all aforementioned levels. Particularly, we find that the GARCH-GED model has the lowest forecasting failure rate in the class of GARCH models.
Funder
South-Central University for Nationalities