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 journalArticle

Abstract

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.
LanguageEnglish
Pages145-163
Number of pages18
JournalJournal of Industrial and Management Optimization
Volume2
Issue number2
Publication statusPublished - 2006

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Regime-switching Model
Autoregressive Conditional Heteroscedasticity
Value at Risk
Stock Market
Stock Index
Generalized Autoregressive Conditional Heteroscedasticity
Confidence Level
Empirical Analysis
Proportion
Calculate
Testing
Autoregressive conditional heteroscedasticity
Value at risk
Chinese stock market
Switching regimes
Financial markets

Keywords

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

Cite this

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Estimating value-at-risk for Chinese stock market by switching regime ARCH model. / Ip, W.; Wong, H.; Pan, J.; Yuan, K.

In: Journal of Industrial and Management Optimization, Vol. 2, No. 2, 2006, p. 145-163.

Research output: Contribution to journalArticle

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