Comparing Univariate and Multivariate Models to Forecast Portfolio Value-at-Risk

Journal of Financial Econometrics, Forthcoming

44 Pages Posted: 17 Jul 2012 Last revised: 18 Aug 2013

See all articles by Andre A. P. Santos

Andre A. P. Santos

CUNEF Universidad

Francisco J. Nogales

Universidad Carlos III de Madrid - Department of Statistics; Institute of Financial Big Data UC3M-BS

Esther Ruiz

Charles III University of Madrid - Department of Statistics and Econometrics

Date Written: July 6, 2012

Abstract

This paper compares multivariate and univariate GARCH models to forecast portfolio value-at-risk (VaR). We provide a comprehensive look at the problem by considering realistic models and diversified portfolios containing a large number of assets, using both simulated and real data. Moreover, we rank the models by implementing statistical tests of comparative predictive ability. We conclude that multivariate models outperform their univariate counterparts on an out-of-sample basis. In particular, among the models considered in this paper, the dynamic conditional correlation model with Student-t errors seems to be the most appropriate specification when implemented to estimate the VaR of the real portfolios analyzed.

Keywords: Backtesting, Basel Accords, market risk, composite likelihood, risk management, volatility

JEL Classification: C22, C53, G17

Suggested Citation

A. P. Santos, Andre and Nogales, Francisco J. and Ruiz, Esther, Comparing Univariate and Multivariate Models to Forecast Portfolio Value-at-Risk (July 6, 2012). Journal of Financial Econometrics, Forthcoming , Available at SSRN: https://ssrn.com/abstract=2110297

Andre A. P. Santos (Contact Author)

CUNEF Universidad ( email )

Calle de los Pirineos 55
Madrid, 28040
Spain

Francisco J. Nogales

Universidad Carlos III de Madrid - Department of Statistics ( email )

Avda. de la Universidad, 30
Leganes, Madrid 28911
Spain
+34 916248773 (Phone)

HOME PAGE: http://www.est.uc3m.es/Nogales

Institute of Financial Big Data UC3M-BS ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Esther Ruiz

Charles III University of Madrid - Department of Statistics and Econometrics ( email )

c/ Madrid 126
Getafe (Madrid), 28903
Spain

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