<abstract xml:lang="en" xmlns="http://www.w3.org/1999/xhtml"><p>This paper examines whether VaR models that are created and suited for developed and liquid markets apply to the volatile and shallow financial markets of EU candidate states. To this end, several VaR models are tested on five official stock indexes from EU candidate states over a period of 500 trading days. The tested VaR models are: a historical simulation with rolling windows of 50, 100, 250 and 500 days, a parametric variance-covariance approach, a BRW historical simulation, a RiskMetrics system and a variance-covariance approach using GARCH forecasts. Based on the backtesting results it can be concluded that VaR models that are commonly used in developed financial market are not well-suited to measuring market risk in EU candidate states. Using some of the most widespread VaR models in these circumstances may result in serious problems for both banks and regulators.</p></abstract>

This paper examines whether VaR models that are created and suited for developed and liquid markets apply to the volatile and shallow financial markets of EU candidate states. To this end, several VaR models are tested on five official stock indexes from EU candidate states over a period of 500 trading days. The tested VaR models are: a historical simulation with rolling windows of 50, 100, 250 and 500 days, a parametric variance-covariance approach, a BRW historical simulation, a RiskMetrics system and a variance-covariance approach using GARCH forecasts. Based on the backtesting results it can be concluded that VaR models that are commonly used in developed financial market are not well-suited to measuring market risk in EU candidate states. Using some of the most widespread VaR models in these circumstances may result in serious problems for both banks and regulators.

Calculating VaR in EU Candidate States

Faculty of Economics, University of Rijeka, Ivana Filipovića 4, Rijeka, Croatia

South East European Journal of Economics and Business

{"article-title":"Calculating VaR in EU Candidate States"}

This paper examines whether VaR models that are created and suited for developed and liquid markets apply to the volatile and shallow financial markets of EU...

Calculating VaR in EU Candidate States

Publié en ligne: 14 avr. 2008

Pages: 23 - 33

DOI: https://doi.org/10.2478/v10033-008-0003-y

Mots clés
EU, VaR, VCV, EWMA, Historical simulation, BRW, ARCH, GARCH

This content is open access.

Calculating VaR in EU Candidate States

Publié en ligne: 14 avr. 2008

Pages: 23 - 33

DOI: https://doi.org/10.2478/v10033-008-0003-y

Mots clésEU, VaR, VCV, EWMA, Historical simulation, BRW, ARCH, GARCH

This content is open access.

Mots clés
EU, VaR, VCV, EWMA, Historical simulation, BRW, ARCH, GARCH