Calculating VaR in EU Candidate States

• Authors: Saša Žiković
• Languages of publication: EN

Abstracts

EN

This paper examines whether VaR models that are created and suited for developed and liquid markets apply to the volatile and shallow financial markets of EU candidate states. To this end, several VaR models are tested on five official stock indexes from EU candidate states over a period of 500 trading days. The tested VaR models are: a historical simulation with rolling windows of 50, 100, 250 and 500 days, a parametric variance-covariance approach, a BRW historical simulation, a RiskMetrics system and a variance-covariance approach using GARCH forecasts. Based on the backtesting results it can be concluded that VaR models that are commonly used in developed financial market are not well-suited to measuring market risk in EU candidate states. Using some of the most widespread VaR models in these circumstances may result in serious problems for both banks and regulators.

Keywords

EN

EU; VaR; VCV; EWMA; Historical simulation; BRW; ARCH; GARCH

• Publisher: Sciendo
• Journal: South East European Journal of Economics and Business
• Year: 2008
• Volume: 3
• Issue: 1
• Pages: 23-33

Dates

published

2008-04-01

online

2008-04-14

Contributors

author

Saša Žiković

• Faculty of Economics, University of Rijeka, Ivana Filipovića 4, Rijeka, Croatia

References

• Boudoukh Jacob, Richardson Matthew, Whitelaw F. Robert, "The Best of Both Worlds: A hybrid Approach to Calculating Value at Risk", Risk, Vol.11., No. 5., May 1998. p. 64-67.
• Jorion, Philippe, "Value at Risk, The New Benchmark for Managing Financial Risk", 2nd edition, New York, McGraw Hill, 2001.
• Manganelli, Simone and Engle, Robert F., "Value at Risk models in Finance", ECB working paper series, No. 75., Aug 2001.
• Žiković, Saša and Bezić, Heri, "Is historical simulation appropriate for measuring market risk?: A case of countries candidates for EU accession", CEDIMES conference, Ohrid, FYR Macedonia, 23-27 March 2006.

Identifiers

DOI

10.2478/v10033-008-0003-y