<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>The value-at-risk (Va) method in market risk management is becoming a benchmark for measuring “market risk” for any financial instrument. The present study aims at examining which VaR model best describes the risk arising out of the Indian equity market (Bombay Stock Exchange (BSE) Sensex). Using data from 2006 to 2015, the VaR figures associated with parametric (variance–covariance, Exponentially Weighted Moving Average, Generalized Autoregressive Conditional Heteroskedasticity) and non-parametric (historical simulation and Monte Carlo simulation) methods have been calculated. The study concludes that VaR models based on the assumption of normality underestimate the risk when returns are non-normally distributed. Models that capture fat-tailed behaviour of financial returns (historical simulation) are better able to capture the risk arising out of the financial instrument.</p>
</abstract>

The value-at-risk (Va) method in market risk management is becoming a benchmark for measuring “market risk” for any financial instrument. The present study aims at examining which VaR model best describes the risk arising out of the Indian equity market (Bombay Stock Exchange (BSE) Sensex). Using data from 2006 to 2015, the VaR figures associated with parametric (variance–covariance, Exponentially Weighted Moving Average, Generalized Autoregressive Conditional Heteroskedasticity) and non-parametric (historical simulation and Monte Carlo simulation) methods have been calculated. The study concludes that VaR models based on the assumption of normality underestimate the risk when returns are non-normally distributed. Models that capture fat-tailed behaviour of financial returns (historical simulation) are better able to capture the risk arising out of the financial instrument.

Value-at-Risk Estimation of Equity Market Risk in India

Acta Universitatis Sapientiae, Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Value-at-Risk Estimation of Equity Market Risk in India"}

The value-at-risk (Va) method in market risk management is becoming a benchmark for measuring “market risk” for any financial instrument. The present study...

Value-at-Risk Estimation of Equity Market Risk in India

Published Online: Sep 27, 2021

Page range: 1 - 24

DOI: https://doi.org/10.2478/auseb-2021-0001

Keywords
value-at-risk (VaR), equity market risk, variance–covariance, historical simulation, financial risk management

© 2021 Jitender, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Value-at-Risk Estimation of Equity Market Risk in India

Published Online: Sep 27, 2021

Page range: 1 - 24

DOI: https://doi.org/10.2478/auseb-2021-0001

Keywordsvalue-at-risk (VaR), equity market risk, variance–covariance, historical simulation, financial risk management

© 2021 Jitender, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
value-at-risk (VaR), equity market risk, variance–covariance, historical simulation, financial risk management