Arbeitspapier
Model averaging and value-at-risk based evaluation of large multi asset volatility models for risk management
This paper considers the problem of model uncertainty in the case of multi-asset volatility models and discusses the use of model averaging techniques as a way of dealing with the risk of inadvertently using false models in portfolio management. In particular, it is shown that under certain conditions portfolio returns based on an average model will be more fat-tailed than if based on an individual underlying model with the same average volatility. Evaluation of volatility models is also considered and a simple Value-at-Risk (VaR) diagnostic test is proposed for individual as well as ?average? models and its exact and asymptotic properties are established. The model averaging idea and the VaR diagnostic tests are illustrated by an application to portfolios of daily returns based on twenty two of Standard & Poor's 500 industry group indices over the period January 2, 1995 to October 13, 2003, inclusive.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 1358
- Classification
-
Wirtschaft
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Forecasting Models; Simulation Methods
Portfolio Choice; Investment Decisions
Model Evaluation, Validation, and Selection
- Subject
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model averaging
value-at-risk
decision based evaluation
Risikomanagement
Value at Risk
Portfolio-Management
Optionspreistheorie
Modell-Spezifikation
- Event
-
Geistige Schöpfung
- (who)
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Pesaran, Mohammad Hashem
Zaffaroni, Paolo
- Event
-
Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
-
Munich
- (when)
-
2004
- Handle
- Last update
-
10.03.2025, 11:43 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
- Pesaran, Mohammad Hashem
- Zaffaroni, Paolo
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2004
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