Value at Risk Calculation of the Czech Stock Portfolio Using Alternative Distributions
|Author:||Mgr. Tomáš Hédl|
|Year:||2011 - summer|
|Leaders:|| PhDr. Petr Gapko Ph.D.
|Work type:|| Finance, Financial Markets and Banking
|Awards and prizes:|
|Abstract:||The aim of this diploma thesis is to analyze ways of Value at Risk calculation. Its
core is to get a suitable model that could most appropriately reflect the
probability distribution of returns of the Czech stock portfolio that we have
generated. In this thesis we find out that the returns follow unbounded
distribution which was first described by Johnson (1949). Since we detect that
returns are correlated we have to apply appropriate autoregressive process that
removes this dependency. In the empirical part we discover an inability of
models based on assumptions of normality, to correctly predict the Value at
Risk. Historical simulation methods, which have promising backtesting results,
are rejected because of the slow adaptation to the recent changes in the market.
However, we find a way how to implement Johnson SU distribution into the
GARCH model. This model, which passes all the tests, is thus able to predict
Value at Risks of the portfolio most accurately.