A Monte Carlo Simulation Approach to Forecasting Multi-period Value-at-Risk and Expected Shortfall Using the FIGARCH-skT Specification

41 Pages Posted: 26 Oct 2018

See all articles by Stavros Antonios Degiannakis

Stavros Antonios Degiannakis

Department of Economic and Regional Development, Panteion University of Political and Social Sciences

Pamela Dent

University of Portsmouth

Christos Floros

Technological Educational Institute of Crete

Multiple version iconThere are 2 versions of this paper

Date Written: 2014

Abstract

In financial literature, Value-at-Risk (VaR) and Expected Shortfall (ES) modelling is focused on producing 1-step ahead conditional variance forecasts. The present paper provides a methodological contribution to the multi-step VaR and ES forecasting through a new adaptation of the Monte Carlo simulation approach for forecasting multi-period volatility to a fractionally integrated GARCH framework for leptokurtic and asymmetrically distributed portfolio returns. Accounting for long memory within the conditional variance process with skewed Student-t (skT) conditionally distributed innovations, accurate 95% and 99% VaR and ES forecasts are calculated for multi-period time horizons. The results show that the FIGARCH-skT model has a superior multi-period VaR and ES forecasting performance.

Keywords: Expected Shortfall, FIGARCH, Forecasting, stock indices, skewed Student-t, Volatility, Long Memory, Value-at-Risk, VaR

JEL Classification: G17; G15; C15; C32; C53

Suggested Citation

Degiannakis, Stavros Antonios and Dent, Pamela and Floros, Christos, A Monte Carlo Simulation Approach to Forecasting Multi-period Value-at-Risk and Expected Shortfall Using the FIGARCH-skT Specification (2014). Available at SSRN: https://ssrn.com/abstract=3259844 or http://dx.doi.org/10.2139/ssrn.3259844

Stavros Antonios Degiannakis (Contact Author)

Department of Economic and Regional Development, Panteion University of Political and Social Sciences ( email )

136 Sygrou
Athens
Greece

Pamela Dent

University of Portsmouth

No Address Available
United Kingdom

Christos Floros

Technological Educational Institute of Crete ( email )

Department of Accounting & Finance
School of Management & Economics
Heraklion, Crete GR 71004
Greece

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
26
Abstract Views
444
PlumX Metrics