Ex-post intraday market-risk extrema are compared with ex-ante standard RiskMetrics parametric Value-at-Risk (VaR) limits for three foreign currency futures markets (British Pound, Japanese Yen, Swiss Frank) to determine whether forecasted volatility of market returns based on settlement price data provides a valid proxy for short-term market risk independent of market leverage.
Intraday violations of ex-ante one-day VaR limits at the 95% confidence level should occur for less than 5% of market days. Violation frequencies for each of the markets tested are shown to occur well in excess of this 5% tolerance level: 9.54% for the British Pound, 7.09% for the Japanese Yen, and 7.79% for the Swiss Franc futures markets.
Thus, it is empirically demonstrated that VaR is a poor proxy for short-term market risk under conditions of market leverage.
Implications for managing (measuring, monitoring, controlling), reporting, and regulating financial market risk are discussed. / Master of Arts
| Identifer | oai:union.ndltd.org:VTETD/oai:vtechworks.lib.vt.edu:10919/36361 |
| Date | 29 December 2000 |
| Creators | Lang, Todd M. |
| Contributors | Economics, Waud, Roger N., Lutton, Thomas J., Lang, William W. |
| Publisher | Virginia Tech |
| Source Sets | Virginia Tech Theses and Dissertation |
| Detected Language | English |
| Type | Thesis |
| Format | application/pdf |
| Rights | In Copyright, http://rightsstatements.org/vocab/InC/1.0/ |
| Relation | etd.pdf |
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