Work detail

Two-stage backtesting of Value-at-Risk models

Author: Bc. Jan Matyáš
Year: 2014 - summer
Leaders: PhDr. Jakub Seidler Ph.D.
Consultants:
Work type: Bachelors
Language: English
Pages: 55
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/137481/
Abstract: This paper deals with a comparative evaluation of various Value-at-Risk models in terms of their
prediction accuracy. We use two-stage backtesting procedure to find the most robust methodology in
several aspects. Backtesting framework comprises of testing properties of independence, unconditional
coverage, and conditional coverage and successive stage, that uses loss function allowing us to compare
the two selected models from the previous part. Four European indices are taken to represent both well
developed countries (DAX, ATX) and developing countries (PX, WIG). Models are examined over the
period from January 1997 to February 2014. The best performing model in our selection appears to be
the historical method with a 99% confidence interval. The use of stable distribution or lower confidence
interval do not produce satisfactory results.
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