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Full-Text Articles in Management Sciences and Quantitative Methods
Index-Exciting Caviar: A New Empirical Time-Varying Risk Model, Dashan Huang, Baimin Yu, Zudi Lu, Sergio Focardi, Frank Fabozzi, Masao Fukushima
Index-Exciting Caviar: A New Empirical Time-Varying Risk Model, Dashan Huang, Baimin Yu, Zudi Lu, Sergio Focardi, Frank Fabozzi, Masao Fukushima
Research Collection Lee Kong Chian School Of Business
Instead of assuming the distribution of return series, Engle and Manganelli (2004) propose a new Value-at-Risk (VaR) modeling approach, Conditional Autoregressive Value-at-Risk (CAViaR), to directly compute the quantile of an individual asset's returns which performs better in many cases than those that invert a return distribution. In this paper we explore more flexible CAViaR models that allow VaR prediction to depend upon a richer information set involving returns on an index. Specifically, we formulate a time-varying CAViaR model whose parameters vary according to the evolution of the index. The empirical evidence reported in this paper suggests that our time-varying CAViaR …