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Uncertainty of Multiple Period Risk Measures

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Author Info
Lönnbark, Carl () (Department of Economics, Umeå University)

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Abstract

In general, the properties of the conditional distribution of multiple period returns do not follow easily from the one-period data generating process. This renders computation of Value-at-Risk and Expected Shortfall for multiple period returns a non-trivial task. In this paper we consider some approximation approaches to computing these measures. Based on the results of a simulation experiment we conclude that among the studied analytical approaches the one based on approximating the distribution of the multiple period shocks by a skew-t was the best. It was almost as good as the simulation based alternative. We also found that the uncertainty due to the estimation risk can be quite accurately estimated employing the delta method. In an empirical illustration we computed ve day V aR0s for the S&P 500 index. The approaches performed about equally well.

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File URL: http://www.econ.umu.se/ues/ues768.pdf
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Publisher Info
Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 768.

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Length: 37 pages
Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:hhs:umnees:0768

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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
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Web page: http://www.econ.umu.se/
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Related research
Keywords: Asymmetry; Estimation Error; Finance; GJR-GARCH; Prediction; Risk Management;

Find related papers by JEL classification:
C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Econometric and Statistical Methods; Specific Distributions
C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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This page was last updated on 2009-10-21.

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