Evaluating Portfolio Value-at-Risk Using Semi-Parametric GARCH Models

32 Pages Posted: 20 Jan 2005

See all articles by J. V. K. Rombouts

J. V. K. Rombouts

HEC Montreal; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE); Center for Interuniversity Research and Analysis on Organization (CIRANO)

Marno Verbeek

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM); Netspar

Date Written: 28 2009 1,

Abstract

In this paper we examine the usefulness of multivariate semi-parametric GARCH models for evaluating the Value-at-Risk (VaR) of a portfolio with arbitrary weights. We specify and estimate several alternative multivariate GARCH models for daily returns on the S&P 500 and Nasdaq indexes. Examining the within sample VaRs of a set of given portfolios shows that the semi-parametric model performs uniformly well, while parametric models in several cases have unacceptable failure rates. Interestingly, distributional assumptions appear to have a much larger impact on the performance of the VaR estimates than the particular parametric specification chosen for the GARCH equations.

Keywords: multivariate GARCH, semi-parametric estimation, value-at-risk, asset allocation

JEL Classification: C53, M, G3, G11, C14, C22

Suggested Citation

Rombouts, Jeroen and Verbeek, Marno, Evaluating Portfolio Value-at-Risk Using Semi-Parametric GARCH Models (28 2009 1,). Available at SSRN: https://ssrn.com/abstract=650825

Jeroen Rombouts (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

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Belgium

Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE) ( email )

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Ste-Foy, Quebec G1K 7P4
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

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Montreal H3C 3J7, Quebec
Canada

Marno Verbeek

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2790 (Phone)

HOME PAGE: http://www.rsm.nl/mverbeek

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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