scholarly journals On the Elicitability and Risk Model Comparison of Emerging Markets Equities

2021 ◽  
Vol 26 (3) ◽  
pp. 63
Author(s):  
Peterson Owusu Junior ◽  
Imhotep Paul Alagidede ◽  
Aviral Kumar Tiwari
Keyword(s):  
South Africa ◽  
Emerging Markets ◽  
Value At Risk ◽  
Risk Model ◽  
Global Financial Crisis ◽  
Risk Models ◽  
Market Conditions ◽  
Tail Risk ◽  
Risk Modelling ◽  
Model Confidence Set

The need for comparative backtesting in the Basel III framework presents the challenge for ranking of internal value-at-risk (VaR) and expected shortfall (ES) models. We use a joint loss function to score the elicitable joint VaR and ES models to select competing tail risk models for the top 9 emerging markets equities and the emerging markets composite index. We achieve this with the model confidence set (MCS) procedure. Our analysis span two sub-sample periods representing turbulent (Eurozone and Global Financial crises periods) and tranquil (post-Global Financial crisis period) market conditions. We find that many of the markets risk models are time-invariant and independent of market conditions. But for China and South Africa this is not true because their risk models are time-varying, market conditions-dependent, percentile-dependent and heterogeneous. Tail risk modelling may be difficult compared to other markets. The resemblance between China and South Africa can stem from the closeness between their equities composition. However, generally, there is evidence of more homogeneity than heterogeneity in risk models. This is indicated by a minimum of three models (out of six) per equity in most of the countries. This may ease the burden for risk managers to find the optimal set of models. Our study is important for internal risk modelling, regulatory oversight, reduce regulatory arbitrage and may bolster confidence in international investors with respect to emerging markets equities.

scholarly journals EVALUATING MEASURES OF MARKET RISK IN CIRCUMSTANCES OF GLOBAL FINANCIAL CRISIS – EMPIRICAL EVIDENCE FROM FIVE COUNTRIES

2013 ◽  
Vol 1 ◽  
pp. 75-81
Author(s):  
Ivica Terzić ◽  
Marko Milojević
Keyword(s):  
Value At Risk ◽  
Global Financial Crisis ◽  
Market Risk ◽  
Var Models ◽  
Risk Models ◽  
Historical Simulation ◽  
Rolling Window ◽  
Independence Properties ◽  
Window Approach ◽  
Metrics Model

The purpose of this paper is to evaluate performance of value-at-risk (VaR) produced by two risk models: historical simulation and Risk Metrics. We perform three backtest: unconditional coverage, independence and conditional coverage. We present results on both VaR 1% and VaR 5% on a one-day horizon for the following indices: S&P 500, DAX, SAX, PX and Belex 15. Our results show that Historical simulation 500 days rolling window approach satisfies unconditional coverage for all tested indices, while Risk Metrics has many rejection cases. On the other hand Risk Metrics model satisfies independence backtest for three indices, while Historical simulation has rejected more times. Based on our strong criteria to accept accuracy of VaR models only if both unconditional coverage and independence properties are satisfied, results indicate that during the crisis period all tested VaR models underestimate the true level of market risk exposure.

scholarly journals Zastosowanie metody kowariancji do określenia ryzyka na rynku nieruchomości komercyjnych

2005 ◽  
pp. 127-148
Author(s):  
Ewa Krawczyk
Keyword(s):  
At Risk ◽  
Real Estate ◽  
Capital Market ◽  
Value At Risk ◽  
Net Present Value ◽  
Risk Model ◽  
Fixed Time ◽  
Real Estate Market ◽  
Risk Models ◽  
Banking Institutions

The Value at Risk model allows answering the base question asked by investor. How much money could be lost with given financial resources involved into given project, in fixed time and fixed risk preference The covariance method used to estimate VaR is static model, but analytic manner of computing allows, after essential analysis, to determine value at risk relatively clearly and quickly. Presented attempt of initiating tool to analyzing quantified risk of investment on real estate market, specialized for capital market, gives observations: a) in the situation of significant growth of investments on real estate market, financed mainly by banking institutions, there is necessity to work out risk models for this market segment, allowing to limit excessive losses caused by too optimistic prices and inappropriate calculations of the effectiveness of the investment, b) well known and used risk models for capital market are basics for connection the both market segments - capital and real - and empirical verification, including investing projects, c) VaR model can be used for determining quantified risk of an investing project, characterized by profitability ratio Net Present Value, but received results should be treated with limited confidence.

scholarly journals Optimal Retention for a Stop-loss Reinsurance Under the VaR and CTE Risk Measures

2007 ◽  
Vol 37 (1) ◽  
pp. 93-112 ◽  
Author(s):  
Jun Cai ◽  
Ken Seng Tan
Keyword(s):  
Value At Risk ◽  
Negative Binomial ◽  
Risk Model ◽  
Sufficient Conditions ◽  
Individual Risk ◽  
Risk Models ◽  
Optimization Criteria ◽  
Collective Risk Model ◽  
Collective Risk ◽  
Stop Loss

We propose practical solutions for the determination of optimal retentions in a stop-loss reinsurance. We develop two new optimization criteria for deriving the optimal retentions by, respectively, minimizing the value-at-risk (VaR) and the conditional tail expectation (CTE) of the total risks of an insurer. We establish necessary and sufficient conditions for the existence of the optimal retentions for two risk models: individual risk model and collective risk model. The resulting optimal solution of our optimization criterion has several important characteristics: (i) the optimal retention has a very simple analytic form; (ii) the optimal retention depends only on the assumed loss distribution and the reinsurer’s safety loading factor; (iii) the CTE criterion is more applicable than the VaR criterion in the sense that the optimal condition for the former is less restrictive than the latter; (iv) if optimal solutions exist, then both VaR- and CTE-based optimization criteria yield the same optimal retentions. In terms of applications, we extend the results to the individual risk models with dependent risks and use multivariate phase type distribution, multivariate Pareto distribution and multivariate Bernoulli distribution to illustrate the effect of dependence on optimal retentions. We also use the compound Poisson distribution and the compound negative binomial distribution to illustrate the optimal retentions in a collective risk model.

scholarly journals Impact of COVID-19 on Market Risk: Appraisal with Value-at-risk Models

2021 ◽  
pp. 001946622098182
Author(s):  
Nupur Moni Das ◽  
Bhabani Sankar Rout
Keyword(s):  
At Risk ◽  
Stock Markets ◽  
Value At Risk ◽  
Global Financial Crisis ◽  
Global Markets ◽  
Risk Models ◽  
Risk Appraisal ◽  
Short Run ◽  
Main Observation ◽  
Highly Correlated

COVID-19 has traumatised the whole world in every aspect ranging from normal day-to-day activities to complete halt of the economies. This piece of work attempted to examine the response of the stock markets to the outbreak of COVID-9 by considering stock indices of five leading countries and comparing the risk with other periods of crisis viz. global financial crisis of 2007-2008 and stock market fluctuation in 1992. Both negative and positive fluctuation are examined, however special emphasis is placed on downside risk. The risk is measured using Value-at-Risk models with different distributional assumptions. The main observation of the study points towards gravity of this deadly virus as the volatility in the stock markets of all the countries is higher even compared to the global crisis of 2008 except China which is quite absurd. On the other hand, global markets are found to be highly correlated in the COVID-19 period. However, investors are also found to be reacting positively when favourable news is transmitted. The findings of this paper will help the investors in understanding the short-run dynamics of the stock markets and use such information in future for investment in similar circumstances.

scholarly journals Using Unconventional Wisdom to Re-Assess and Rebuild the BRICS

2019 ◽  
Vol 12 (1) ◽  
pp. 8
Author(s):  
Bertrand Guillotin
Keyword(s):  
South Africa ◽  
Emerging Markets ◽  
Global Economy ◽  
Global Financial Crisis ◽  
Housing Prices ◽  
Analytical Framework ◽  
Conventional Wisdom ◽  
New Approach ◽  
Developed Markets ◽  
Basic Assumptions

In 2015, Goldman Sachs closed its BRIC (Brazil, Russia, India, China) fund after years of losses and plummeting assets. Emerging markets had, once again, turned into submerging markets. Their dependence on “developed” markets and established institutions had failed them in a post-Global Financial Crisis (GFC) era, anchored in protectionism, risks, volatility, and uncertainty. The once commonly-accepted wisdom that called for US housing prices to always increase was part of the problem and contagion. Rebuilding the BRICS (S for South Africa) using conventional wisdom would probably not work. A new approach is necessary, especially since the last key contributions to show the inadequacy of a conventional wisdom-based strategy in emerging markets are more than ten years old. To help fill this gap, this paper proposes a holistic analytical framework for strategists to re-assess risks and opportunities in the BRICS. We illustrate how five basic assumptions can be proven wrong and lead to the creation of unconventional wisdom that can help derive some strategic insights. We find that rebuilding the BRICS for them to be more resilient is possible, if not vital, for the health of the global economy.

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