Bayesian Forecasting For Financial Risk Management Pre And Post The Global Financial Crisis

Download or read book Bayesian Forecasting for Financial Risk Management, Pre and Post the Global Financial Crisis written by Cathy W. S. Chen and published by . This book was released on 2015 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Value-at-Risk (VaR) forecasting via a computational Bayesian framework is considered. A range of parametric models are compared, including standard, threshold nonlinear and Markov switching GARCH specifications, plus standard and nonlinear stochastic volatility models, most considering four error probability distributions: Gaussian, Student-t, skewed-t and generalized error distribution. Adaptive Markov chain Monte Carlo methods are employed in estimation and forecasting. A portfolio of four Asia-Pacific stock markets is considered. Two forecasting periods are evaluated in light of the recent global financial crisis. Results reveal that: (i) GARCH models out-performed stochastic volatility models in almost all cases; (ii) asymmetric volatility models were clearly favoured pre-crisis; while at the 1% level during and post-crisis, for a 1 day horizon, models with skewed-t errors ranked best, while IGARCH models were favoured at the 5% level; (iii) all models forecasted VaR less accurately and anti-conservatively post-crisis.