Dynamic Factor Value-at-Risk for Large Heteroskedastic Portfolios
35 Pages Posted: 20 May 2011 Last revised: 18 Nov 2012
Date Written: September 18, 2012
We propose a methodology that can efficiently measure the Value-at-Risk (VaR) of large portfolios with time-varying volatilities and correlations by bringing together the established historical simulation framework and recent contributions to the Dynamic Factor Models literature. We find that the proposed methodology compares well with widely used VaR models, and is a significant improvement from a computational point of view.
Keywords: Risk Management, Value-at-Risk, Dynamic Factor Models
JEL Classification: C1, C22
Suggested Citation: Suggested Citation