The Effect of Risk Aversion and Holding Period on VaR - An Empirical Study in Taiwan Weighted Stock Index and Sub-index

• Main Authors: Ying-Lu Lai, 賴映儒
• Other Authors: Po-Chin Wu
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/20862278628696049822

碩士 === 中原大學 === 國際貿易研究所 === 97 === In evaluating value at risk (VaR) the confidence level, holding-day of portfolio and portfolio scale all play important role. This study employs different methods to estimate the VaR by considering different asset holding days and risk attitude. This study attempts to consider various confidence levels, holding-day of portfolio and assets to find out the best method to measure asset’s VaR. In empirical study this article uses the Taiwan Weighted Stock Index, Plastics & Chemical Sub-index, Electrical Sub-index and Banking Sub-index as sample objects to evaluate their VaRs, based on three approaches, including historical simulation, Monte Carlo simulation and extreme value theory. To judge the threshold value in the extreme value theory, we use the 10 percentile or 15 percentile of sample data as proxy. In addition, we use the square-root-of-time rule and α-root scaling law to calculate the VaRs of different holding days. Finally, we use back-testing and RMSE to evaluate the forecasting performance of different estimation models of VaR. Empirical study shows that the extreme value theory with 10 percentile has better forecast results than other risk evaluation models. Historical simulation has high probability to underestimate the VaR no matter which stock index is chosen. For a 20-day (1-day) holding of asset, Monte Carlo simulation (the extreme value theory) has the best evaluation performance in VaR. The optimal VaR evaluation method for Plastics & Chemical Sub-index (Banking Sub-index) is to adopt historical simulation (Monte Carlo simulation). With regard to the effect of risk attitude on VaR, Monte Carlo simulation (historical simulation) is more appropriate for the discreet (general) investor.