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Analytic Approximations to GARCH Aggregated Returns Distributions with Applications to VaR and ETL

Alexander, Carol and Lazar, Emese and Stanescu, Silvia (2011) Analytic Approximations to GARCH Aggregated Returns Distributions with Applications to VaR and ETL. Working paper. ICMA Centre Discussion Papers in Finance, Reading (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)
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http://www.icmacentre.ac.uk/files/discussion-paper...

Abstract

It is widely accepted that some of the most accurate predictions of aggregated asset returns are based on an appropriately specified GARCH process. As the forecast horizon is greater than the frequency of the GARCH model, such predictions either require time-consuming simulations or they can be approximated using a recent development in the GARCH literature, viz. analytic conditional moment formulae for GARCH aggregated returns. We demonstrate that this methodology yields robust and rapid calculations of the Value-at-Risk (VaR) generated by a GARCH process. Our extensive empirical study applies Edgeworth and Cornish-Fisher expansions and Johnson SU distributions, combined with normal and Student t, symmetric and asymmetric (GJR) GARCH processes to returns data on different financial assets; it validates the accuracy of the analytic approximations to GARCH aggregated returns and derives GARCH VaR estimates that are shown to be highly accurate over multiple horizons and significance levels.

Item Type: Monograph (Working paper)
Uncontrolled keywords: GARCH, higher conditional moments, approximate predictive distributions, Value-at-Risk, Conditional VaR, Expected tail loss, Expected shortfall
Subjects: H Social Sciences
H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School > Accounting and Finance
Depositing User: Cathy Norman
Date Deposited: 07 Feb 2013 11:26 UTC
Last Modified: 29 May 2019 09:59 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/33175 (The current URI for this page, for reference purposes)
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