Value-at-Risk analysis for long-term interest rate futures: Fat-tail and long memory in return innovations [An article from: Journal of Empirical Finance]

by P.T. Wu, S.J. Shieh

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This digital document is a journal article from Journal of Empirical Finance, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This article uses the FIGARCH(1,d,1) models to calculate daily Value-at-Risk (VaR) for T-bond interest rate futures returns of long and short trading positions based on the normal, Student-t, and skewed Student-t innovations distributions. The empirical results show that based on Kupiec LR failure rate tests, in-sample and out-of-sample VaR values calculated using FIGARCH(1,d,1) model with skewed Student-t innovations are more accurate than those generated using traditional GARCH(1,1) models. Moreover, we find that the in-sample values of VaR are subject to a significant positive bias, as pointed out by Inui et al. [Inui, K., Kijima, M., Kitano, A., 2003. VaR is subject to a significant positive bias, working paper].

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