engleski

Applying Hybrid Approach to Calculating VaR in Croatia

According to the 1996 Market Risk Amendment to the Basel Accord, besides using the standardized approach, banks can set their capital requirements for market risk of their trading positions based on the ten-day 1-percent VaR. The 1996 Amendment allows ten-day 1-percent VaR to be measured as a multiple of one-day 1-percent VaR by using a simplistic square root of time rule. Although VaR is a conceptually simple measure of risk, computing VaR in practice can be very difficult due to a simple reason that position risk of a bank's portfolio depends on the joint distribution of all of the securities composing that particular portfolio. Fortunately, portfolio level risk measurement requires only a univariate, portfolio-level model thus drastically reducing the computational burden of multivariate models. If interest centres on the distribution of the portfolio returns, then this distribution can be modelled directly from portfolio returns rather than via aggregation based on a larger and almost inevitably less-well-specified multivariate model. In this paper the author examines the theoretical background of two nonparametric approaches to calculating VaR, historical simulation and hybrid approach developed by Boudoukh, Richardson and Whitelaw, and examines their performance in a transitional capital market such as Republic of Croatia. The paper evaluates and analyses the out-of-sample forecasting accuracy of both methods on two Croatian indexes, CROBEX – the official index of Zagreb Stock Exchange and VIN - the official index of Varazdin Stock Exchange.

value at risk; historical simulation; hybrid approach; Croatia

Prošireni sažetak rada objavljen je u Knjizi sažetaka, str. 221-223, a puni tekst rada na CD-u.