Improving Hull and White's Method of Estimating Portfolio Value-at-Risk
Article first published online: 3 AUG 2011
Copyright © 2011 John Wiley & Sons, Ltd.
Journal of Forecasting
Volume 31, Issue 8, pages 706–720, December 2012
How to Cite
Changchien, C.-C., Lin, C.-H. and Yang, H.-C. P. (2012), Improving Hull and White's Method of Estimating Portfolio Value-at-Risk. J. Forecast., 31: 706–720. doi: 10.1002/for.1241
- Issue published online: 18 OCT 2012
- Article first published online: 3 AUG 2011
- historical simulation;
- Garman-Klass estimator
We propose a method approach. We use six international stock price indices and three hypothetical portfolios formed by these indices. The sample was observed daily from 1 January 1996 to 31 December 2006. Confirmed by the failure rates and backtesting developed by Kupiec (Technique for verifying the accuracy of risk measurement models. Journal of Derivatives 1995; 3: 73–84) and Christoffersen (Evaluating interval forecasts. International Economic Review 1998; 39: 841–862), the empirical results show that our method can considerably improve the estimation accuracy of value-at-risk. Thus the study establishes an effective alternative model for risk prediction and hence also provides a reliable tool for the management of portfolios. Copyright © 2011 John Wiley & Sons, Ltd.