n South African Journal of Economic and Management Sciences - Value at Risk in the South African equity market : a view from the tails
|Article Title||Value at Risk in the South African equity market : a view from the tails|
|© Publisher:||University of Pretoria|
|Journal||South African Journal of Economic and Management Sciences|
|Author||C. Milwidsky and E. Mare|
|Publication Date||Sep 2010|
|Pages||345 - 361|
ISI Social Science
Traditional parametric Value at Risk (VaR) estimates assume normality in financial returns data. However, it is well known that this distribution, while convenient and simple to implement, underestimates the kurtosis demonstrated in most financial returns. Huisman, Koedijk and Pownall (1998) replace the normal distribution with the Student's t distribution in modelling financial returns for the calculation of VaR. In this paper we extend their approach to the Monte Carlo simulation of VaR on both linear and non-linear instruments with application to the South African equity market. We show, via backtesting, that the t distribution produces superior results to the normal one.
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