Term Structure of Risk Under Alternative Econometric Specifications
28 Pages Posted: 22 Nov 2004
There are 3 versions of this paper
Term Structure of Risk Under Alternative Econometric Specifications
Term Structure of Risk Under Alternative Econometric Specifications
Term Structure of Risk Under Alternative Econometric Specifications
Date Written: September 2004
Abstract
This Paper characterizes the term structure of risk measures such as Value at Risk (VaR) and expected shortfall under different econometric approaches including multivariate regime switching, GARCH-in-mean models with student-t errors, two-component GARCH models and a non-parametric bootstrap. We show how to derive the risk measures for each of these models and document large variations in term structures across econometric specifications. An out-of-sample forecasting experiment applied to stock, bond and cash portfolios suggests that the best model is asset and horizon specific but that the bootstrap and regime switching model are best overall for VaR levels of 5% and 1%, respectively.
Keywords: Term structure of risk, nonlinear econometric models, simulation models
JEL Classification: G12
Suggested Citation: Suggested Citation
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