Arbeitspapier
Bayesian Risk Forecasting for Long Horizons
We present an accurate and efficient method for Bayesian forecasting of two financial risk measures, Value-at-Risk and Expected Shortfall, for a given volatility model. We obtain precise forecasts of the tail of the distribution of returns not only for the 10-days-ahead horizon required by the Basel Committee but even for long horizons, like one-month or one-year-ahead. The latter has recently attracted considerable attention due to the different properties of short term risk and long run risk. The key insight behind our importance sampling based approach is the sequential construction of marginal and conditional importance densities for consecutive periods. We report substantial accuracy gains for all the considered horizons in empirical studies on two datasets of daily financial returns, including a highly volatile period of the recent financial crisis. To illustrate the flexibility of the proposed construction method, we present how it can be adjusted to the frequentist case, for which we provide counterparts of both Bayesian applications.
- Language
-
Englisch
- Bibliographic citation
-
Series: Tinbergen Institute Discussion Paper ; No. TI 2019-018/III
- Classification
-
Wirtschaft
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- Subject
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Bayesian inference
forecasting
importance sampling
numerical accuracy
long run risk
Value-at-Risk
Expected Shortfall
- Event
-
Geistige Schöpfung
- (who)
-
Borowska, Agnieszka
Hoogerheide, Lennart
Koopman, Siem Jan
- Event
-
Veröffentlichung
- (who)
-
Tinbergen Institute
- (where)
-
Amsterdam and Rotterdam
- (when)
-
2019
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Borowska, Agnieszka
- Hoogerheide, Lennart
- Koopman, Siem Jan
- Tinbergen Institute
Time of origin
- 2019
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