Improving Hull and White's Method of Estimating Portfolio Value‐at‐Risk |
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| Authors: | Chang‐Cheng Changchien Chu‐Hsiung Lin Hsien‐Chueh Peter Yang |
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| Affiliation: | 1. Department of Finance, Chang Jung Christian University, , Tainan, Taiwan, ROC;2. Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology, , Kaohsiung, Taiwan, ROC |
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| Abstract: | We propose a method approach. We use six international stock price indices and three hypothetical portfolios formed by these indices. The sample was observed daily from 1 January 1996 to 31 December 2006. Confirmed by the failure rates and backtesting developed by Kupiec (Technique for verifying the accuracy of risk measurement models. Journal of Derivatives 1995; 3 : 73–84) and Christoffersen (Evaluating interval forecasts. International Economic Review 1998; 39 : 841–862), the empirical results show that our method can considerably improve the estimation accuracy of value‐at‐risk. Thus the study establishes an effective alternative model for risk prediction and hence also provides a reliable tool for the management of portfolios. Copyright © 2011 John Wiley & Sons, Ltd. |
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| Keywords: | value‐at‐risk historical simulation volatility Garman‐Klass estimator |
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