Estimating value-at-risk for Chinese stock market by switching regime ARCH model

W. Ip, H. Wong, J. Pan, K. Yuan

Research output: Contribution to journalArticlepeer-review


This paper proposes a method of estimating Value at Risk (VaR) based on the assumption that the financial returns follow a switching regime ARCH model. We use the simple switching-regime model, the traditional GARCH(1,1) model and the switching-regime ARCH model to do some empirical analysis and to calculate the VaR values under different confidence levels for Shanghai and Shenzhen Stock Index. The calculated VaR values are com- pared. The results of back-testing and the Proportion of Failure test show the VaR values calculated by the switching-regime ARCH model are preferred to other methods.
Original languageEnglish
Pages (from-to)145-163
Number of pages18
JournalJournal of Industrial and Management Optimization
Issue number2
Publication statusPublished - 2006


  • value-at-risk
  • switching regime
  • ARCH model
  • clustering
  • leptokurtosis
  • fat-tailed distribution
  • back-testing
  • statistics
  • modelling science


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