A Bootstrap Method to Calculate Value-At-Risk in Emerging Markets under Stochastic Volatility Models

10.29973/JCSA.200706.0001

Cheng-Der Fuh；Yu-Lin Yang

Bootstrap ； emerging markets ； Value-at-Risk ； stochastic volatility ； EM algorithm

中國統計學報

45卷2期（2007 / 06 / 01）

106 - 129

英文

These days, risk management is an important issue. A standard benchmark used to measure and to manage market risks is the Value-at-Risk (VaR). Since emerging markets have drawn considerable interest in recent years, this article applies the bootstrap method to calculate the VaR estimate of nine emerging market stock indices. We also examine the US S&P 500 composite index and MSCI EM (Emerging Markets) Index for comparison. Simulation results show that the VaR estimate is not far from the true VaR. A back-test shows that stochastic volatility models with ε~N(0, 1) or ~t(6) or ~t(4) can fit the different indices examined in this article. The VaR estimates are relatively high in Turkey, India, Mexico, Russia and Indonesia; while Thailand, Korea, Taiwan and Malaysia have relatively low VaR estimates. As we expect, the S&P 500 index has a relatively low VaR estimate. However, the fact that the MSCI EM Index has a relatively high VaR estimate indicates that the diversification effects are not significant between emerging markets.

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