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Comparison of Alternative Approaches to VaR Evaluation

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  • Marcin Łupiński

Abstract

The main goal of this article is to present alternative methods of market risk measurement in Polish banking sector with popular Value at Risk (VaR) approach. Four main methods: analytical, historical, simulation and hybrid (Filtered Historical Simulation, FHS) of VaR are presented and then three of them are applied to evaluate interest risk stemming from government bonds’ portfolio held by Polish banks. Adequacy of VaR measures counted with particular methods is compared with the help of formalized criteria and best fitted methodology is recommended.

Suggested Citation

  • Marcin Łupiński, 2013. "Comparison of Alternative Approaches to VaR Evaluation," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 33.
    • Handle: RePEc:eko:ekoeko:33_127
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    File URL: http://ekonomia.wne.uw.edu.pl/ekonomia/getFile/368
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    References listed on IDEAS

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    1. McNeil, Alexander J. & Frey, Rudiger, 2000. "Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 271-300, November.
    2. Pritsker, Matthew, 2006. "The hidden dangers of historical simulation," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 561-582, February.
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