American Institute of Mathematical Sciences

Advanced
April  2006, 2(2): 145-163. doi: 10.3934/jimo.2006.2.145

Estimating value-at-risk for chinese stock market by switching regime ARCH model

W.C. Ip 1, , H. Wong 1, , Jiazhu Pan 2, and  Keke Yuan 2,

1. 

Department of Applied Mathematics, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, China, China
2. 

LMAM and Department of Financial Mathematics, School of Mathematical Sciences, Peking University, Beijing 100871, China, China

Received  May 2005 Revised  September 2005 Published  April 2006

This paper proposes a method of estimating Value at Risk (VaR) based on the assumption that the financial returns follow a switching regime ARCH model. We use the simple switching-regime model, the traditional GARCH(1,1) model and the switching-regime ARCH model to do some empirical analysis and to calculate the VaR values under different confidence levels for Shanghai and Shenzhen Stock Index. The calculated VaR values are compared. The results of back-testing and the Proportion of Failure test show the VaR values calculated by the switching-regime ARCH model are preferred to other methods.
Keywords: Value-at-Risk, switching regime, back-testing, ARCH model, leptokurtosis, proportion of failure test., volatility clustering, fat-tailed distribution.
Mathematics Subject Classification: 62M1.
Citation: W.C. Ip, H. Wong, Jiazhu Pan, Keke Yuan. Estimating value-at-risk for chinese stock market by switching regime ARCH model. Journal of Industrial & Management Optimization, 2006, 2 (2) : 145-163. doi: 10.3934/jimo.2006.2.145
[1]

Ming Yan, Hongtao Yang, Lei Zhang, Shuhua Zhang. Optimal investment-reinsurance policy with regime switching and value-at-risk constraint. Journal of Industrial & Management Optimization, 2020, 16 (5) : 2195-2211. doi: 10.3934/jimo.2019050
[2]

Mourad Bellassoued, Raymond Brummelhuis, Michel Cristofol, Éric Soccorsi. Stable reconstruction of the volatility in a regime-switching local-volatility model. Mathematical Control & Related Fields, 2020, 10 (1) : 189-215. doi: 10.3934/mcrf.2019036
[3]

Jingzhen Liu, Lihua Bai, Ka-Fai Cedric Yiu. Optimal investment with a value-at-risk constraint. Journal of Industrial & Management Optimization, 2012, 8 (3) : 531-547. doi: 10.3934/jimo.2012.8.531
[4]

Hao-Zhe Tay, Kok-Haur Ng, You-Beng Koh, Kooi-Huat Ng. Model selection based on value-at-risk backtesting approach for GARCH-Type models. Journal of Industrial & Management Optimization, 2020, 16 (4) : 1635-1654. doi: 10.3934/jimo.2019021
[5]

Li Zu, Daqing Jiang, Donal O'Regan. Persistence and stationary distribution of a stochastic predator-prey model under regime switching. Discrete & Continuous Dynamical Systems, 2017, 37 (5) : 2881-2897. doi: 10.3934/dcds.2017124
[6]

Helmut Mausser, Oleksandr Romanko. CVaR proxies for minimizing scenario-based Value-at-Risk. Journal of Industrial & Management Optimization, 2014, 10 (4) : 1109-1127. doi: 10.3934/jimo.2014.10.1109
[7]

Tak Kuen Siu, Yang Shen. Risk-minimizing pricing and Esscher transform in a general non-Markovian regime-switching jump-diffusion model. Discrete & Continuous Dynamical Systems - B, 2017, 22 (7) : 2595-2626. doi: 10.3934/dcdsb.2017100
[8]

Engel John C Dela Vega, Robert J Elliott. Conditional coherent risk measures and regime-switching conic pricing. Probability, Uncertainty and Quantitative Risk, , () : -. doi: 10.3934/puqr.2021014
[9]

Vladimir Gaitsgory, Tanya Tarnopolskaya. Threshold value of the penalty parameter in the minimization of $L_1$-penalized conditional value-at-risk. Journal of Industrial & Management Optimization, 2013, 9 (1) : 191-204. doi: 10.3934/jimo.2013.9.191
[10]

K. F. Cedric Yiu, S. Y. Wang, K. L. Mak. Optimal portfolios under a value-at-risk constraint with applications to inventory control in supply chains. Journal of Industrial & Management Optimization, 2008, 4 (1) : 81-94. doi: 10.3934/jimo.2008.4.81
[11]

Robert J. Elliott, Tak Kuen Siu. Stochastic volatility with regime switching and uncertain noise: Filtering with sub-linear expectations. Discrete & Continuous Dynamical Systems - B, 2017, 22 (1) : 59-81. doi: 10.3934/dcdsb.2017003
[12]

Yuebao Wang, Qingwu Gao, Kaiyong Wang, Xijun Liu. Random time ruin probability for the renewal risk model with heavy-tailed claims. Journal of Industrial & Management Optimization, 2009, 5 (4) : 719-736. doi: 10.3934/jimo.2009.5.719
[13]

Hongfu Yang, Xiaoyue Li, George Yin. Permanence and ergodicity of stochastic Gilpin-Ayala population model with regime switching. Discrete & Continuous Dynamical Systems - B, 2016, 21 (10) : 3743-3766. doi: 10.3934/dcdsb.2016119
[14]

Siyang Cai, Yongmei Cai, Xuerong Mao. A stochastic differential equation SIS epidemic model with regime switching. Discrete & Continuous Dynamical Systems - B, 2021, 26 (9) : 4887-4905. doi: 10.3934/dcdsb.2020317
[15]

Miaomiao Gao, Daqing Jiang, Tasawar Hayat, Ahmed Alsaedi, Bashir Ahmad. Dynamics of a stochastic HIV/AIDS model with treatment under regime switching. Discrete & Continuous Dynamical Systems - B, 2021  doi: 10.3934/dcdsb.2021181
[16]

Michael C. Fu, Bingqing Li, Rongwen Wu, Tianqi Zhang. Option pricing under a discrete-time Markov switching stochastic volatility with co-jump model. Frontiers of Mathematical Finance, 2022, 1 (1) : 137-160. doi: 10.3934/fmf.2021005
[17]

Jie Yu, Qing Zhang. Optimal trend-following trading rules under a three-state regime switching model. Mathematical Control & Related Fields, 2012, 2 (1) : 81-100. doi: 10.3934/mcrf.2012.2.81
[18]

Ka Chun Cheung, Hailiang Yang. Optimal investment-consumption strategy in a discrete-time model with regime switching. Discrete & Continuous Dynamical Systems - B, 2007, 8 (2) : 315-332. doi: 10.3934/dcdsb.2007.8.315
[19]

Yinghui Dong, Kam Chuen Yuen, Guojing Wang. Pricing credit derivatives under a correlated regime-switching hazard processes model. Journal of Industrial & Management Optimization, 2017, 13 (3) : 1395-1415. doi: 10.3934/jimo.2016079
[20]

Chao Xu, Yinghui Dong, Zhaolu Tian, Guojing Wang. Pricing dynamic fund protection under a Regime-switching Jump-diffusion model with stochastic protection level. Journal of Industrial & Management Optimization, 2020, 16 (6) : 2603-2623. doi: 10.3934/jimo.2019072

2020 Impact Factor: 1.801

Tools

Metrics

  • PDF downloads (47)
  • HTML views (0)
  • Cited by (0)

Other articles
by authors

[Back to Top]

Copyright © 2021 American Institute of Mathematical Sciences | Privacy Policy