Abstract
In this paper, the performance of RiskMetrics model for prediction of 1-day and 10-days value at risk werepreceded in three confidence levels of 95%, 97.5% and 99%.The main data are TEDPIX Index that theirfluctuations can be indicated market risk of Tehran Stock Exchange. Time series of this index has been appliedfrom 21 March 2001 to 20 March 2010 with the total 2172 observations. As well, for validation of models,Kupiec test and Christoffersen test have been applied. The finding of this paper is that Risk Metrics model aregood alternatives in modeling volatility and in estimating VaR. Also the results indicate that in Kupiec test forboth periods, the accepting models number are equal, but in Christoffersen test, the results indicate that uponincreasing the time period, the accepting models number are decreased.
Highlights
The term “risk management” originated in the 1950s.It had long been used to describe techniques for addressing property and casualty contingencies
The performance of RiskMetrics model is investigated in predicting market risk in Tehran Stock Exchange
Apart from the exponentially weighted moving average (EWMA) at 97.5% confidence level, no dependence between exceptions according to Independence test occurs, at least not in statistically significant terms.Christoffersen test indicate that MA (100) model in the confidence levels of 95% and 97.5% and MA (50) model in the confidence level of 97.5%, and EWMA model in the confidence level of 95% are certified that in comparison with 1-day prediction, EWMA model has not been certified in the confidence level of 97.5%
Summary
The term “risk management” originated in the 1950s.It had long been used to describe techniques for addressing property and casualty contingencies. It was not until 1990s, after a series of financial disaster (Orage county (December 1994), Barings (February 1995), Metallgesellschaft (December 1993)) that financial institutions came to realize the importance of financial risk management as a discipline. In virtually all cases management did not know what risks the institution was taking. (3) Risk management helps investors achieve a better allocation of risks, because financial institutions would typically have better access to capital markets. Value at Risk (VaR) has been became the most widely accepted tool to measure market risk, and it is a standard in the industry.
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