https://orcid.org/0000-0002-5454-2257
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Charlie X Cai, Minjoo Kim, Yongcheol Shin, Qi Zhang, FARVaR: Functional Autoregressive Value-at-Risk, Journal of Financial Econometrics, Volume 17, Issue 2, Spring 2019, Pages 284–337, https://doi.org/10.1093/jjfinec/nby031
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Abstract
Motivated by the stylized fact that intraday returns can provide additional information on the tail behavior of daily returns, we propose a functional autoregressive value-at-risk (VaR) approach which can directly incorporate such informational advantage into the daily VaR forecast. Our approach leads to greater flexibility in modeling the dynamic evolution of the density function of intraday returns and the ability to capture substantial swings in the tails following major events. We comprehensively evaluate our proposed model using intraday transaction data and demonstrate that it can improve coverage ability, reduce economic cost, and enhance statistical reliability in market risk management.
