Optimally Harnessing Inter-Day and Intra-Day Information for Daily Value-at-Risk Prediction

International Journal of Forecasting 29(1), 28-42

34 Pages Posted: 29 Feb 2012 Last revised: 19 Dec 2013

See all articles by Ana-Maria Fuertes

Ana-Maria Fuertes

Cass Business School, City University of London

Jose Olmo

Universidad de Zaragoza; University of Southampton

Date Written: April 5, 2012

Abstract

We make use of quantile regression theory to obtain a combination of individual potentially-biased VaR forecasts that is optimal because it meets by construction ex post the correct out-of-sample conditional coverage criterion. This enables a Wald-type conditional quantile forecast encompassing test for any finite set of competing (semi/non)parametric models which can be nested. Two attractive properties of this backtesting approach are robustness to model risk and estimation uncertainty. We deploy the techniques to confront inter-day and high frequency intra-day VaR models for equity, FOREX, fixed income and commodity trading desks. Forecast combination of both types of models is especially warranted for more extreme-tail risks. Overall our empirical analysis supports the use of high frequency 5-minute price information for daily risk management.

Keywords: Quantile regression, Optimal forecast combination, Encompassing, Conditional coverage, High-frequency data, Realized Variance

JEL Classification: C52, C53, G15

Suggested Citation

Fuertes, Ana-Maria and Olmo, Jose, Optimally Harnessing Inter-Day and Intra-Day Information for Daily Value-at-Risk Prediction (April 5, 2012). International Journal of Forecasting 29(1), 28-42 , Available at SSRN: https://ssrn.com/abstract=1924237 or http://dx.doi.org/10.2139/ssrn.1924237

Ana-Maria Fuertes (Contact Author)

Cass Business School, City University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://www.city.ac.uk/people/academics/ana-maria-fuertes

Jose Olmo

Universidad de Zaragoza ( email )

Gran Via, 2
50005 Zaragoza, Zaragoza 50005
Spain

University of Southampton ( email )

Southampton
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
188
Abstract Views
1,488
rank
195,574
PlumX Metrics