Title: Value-at-risk for the long and short trading position with the Pearson type-IV distribution

Authors: Stavros Stavroyiannis; Ilias Makris; Vasilis Nikolaidis; Leonidas Zarangas

Addresses: Educational Institute of Kalamata, Department of Finance and Auditing, School of Management and Economics, Antikalamos 241 00, Greece. ' Educational Institute of Kalamata, Department of Finance and Auditing, School of Management and Economics, Antikalamos 241 00, Greece. ' Educational Institute of Kalamata, Department of Finance and Auditing, School of Management and Economics, Antikalamos 241 00, Greece. ' Technological Educational Institute of Epirus, Department of Finance and Auditing, School of Management and Economics, Psathaki, 48100 Preveza, Greece

Abstract: We examine the value-at-risk where the volatility and returns are modelled via a typical GARCH(1,1) model and the innovations process is the Pearson type-IV distribution. As case studies, we examine the NASDAQ and FTSE100 indices from 12-Dec-1984 to 21-Dec-2000. The model is fitted to the data via maximisation of the logarithm of the maximum likelihood estimator. In sample backtesting is performed by the success-failure ratio, the Kupiec p-test, the Christoffersen tests, the expected shortfall, and the DQ test of Engle and Manganelli. The results indicate that the Pearson type-IV distribution gives better results compared with the skewed student distribution.

Keywords: financial markets; econometrics; value-at-risk; Pearson distribution; VAR; long trading positions; short trading positions; volatility; returns; modelling; GARCH model; NASDAQ; FTSE100.

DOI: 10.1504/GBER.2013.050664

Global Business and Economics Review, 2013 Vol.15 No.1, pp.14 - 27

Published online: 30 Oct 2013 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article