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http://dx.doi.org/10.5351/KJAS.2012.25.1.029

GARCH Model with Conditional Return Distribution of Unbounded Johnson  

Jung, Seung-Hyun (Department of Statistics, University of Seoul)
Oh, Jung-Jun (Department of Statistics, University of Seoul)
Kim, Sung-Gon (Department of Statistics, University of Seoul)
Publication Information
The Korean Journal of Applied Statistics / v.25, no.1, 2012 , pp. 29-43 More about this Journal
Abstract
Financial data such as stock index returns and exchange rates have the properties of heavy tail and asymmetry compared to normal distribution. When we estimate VaR using the GARCH model (with the conditional return distribution of normal) it shows the tendency of the lower estimation and clustering in the losses over the estimated VaR. In this paper, we argue that this problem can be resolved through the adaptation of the unbounded Johnson distribution as that of the condition return. We also compare this model with the GARCH with the conditional return distribution of normal and student-t. Using the losses exceed the ex-ante VaR, estimates, we check the validity of the GARCH models through the failure proportion test and the clustering test. We nd that the GARCH model with conditional return distribution of unbounded Johnson provides an appropriate estimation of the VaR and does not occur the clustering of violations.
Keywords
Clustering test; failure proportion test; GARCH model; Johnson Distribution; Value at Risk;
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