An Improved Procedure for VaR/CVaR Estimation under Stochastic Volatility Models
نویسندگان
چکیده
This paper proposes an improved procedure for stochastic volatility model estimation with an application in risk management. This procedure is composed of the following instrumental components: Fourier transform method for volatility estimation with a price correction scheme, and importance sampling for extremal event probability estimation with applications to estimate Value-at-Risk and conditional Value-at-Risk. Then we conduct a Value-at-Risk backtesting for some foreign exchange data and the S&P 500 index data. In comparison with empirical results obtained from RiskMetrics, historical simulation, and the GARCH(1,1) model, we find that our improved procedure outperforms on average. JEL classification: C13; C14; C63.
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