Proceedings of 10th Asia - Pacific Business and Humanities Conference
22 - 23 February 2016, Hotel Istana, Kuala Lumpur, Malaysia
ISBN: 978-1-925488-00-5
Comprehensive Comparison of Market Risk Models
Tomáš Tichý, Aleš Kresta and Mehdi Toloo
Abstract
Value at Risk (VaR) models are important part of financial risk management and thus
concern especially banks and insurance companies. While a wrong amount of capital
would have negative impact on entity performance and might even lead to bankruptcy,
application of an improper model could have the same implications. It is therefore
natural that there have been many studies focused on market risk model performance
evaluation, see eg. Berkowitz et al. (2011) or Berkowitz and O’Brien (2002). In our
previous research (Kresta and Tichy, 2012), we have tested various type of models
using standard approach of backtesting for risk measure at a single probability level.
By contrast here, we adopt an alternative approach based on Data Envelopment
Analysis to examine the efficiency of available models comprehensively for a set of
probability levels. The results shows some interesting findings and relations among
particular models, including recommendation about efficient estimation windows for
each model.
Key words: Model quality, data envelopment analysis, market risk, Value at
Risk, historical simulation, NIG
Track: Finance
_________________________
Department of Finance, Faculty of Economics, Technical University Ostrava, Sokolská 33, 701 21
Ostrava, Czech Republic. E-mail: ales.kresta@vsb.cz.