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VALUE AT RISK IN EMERGING CURRENCY MARKETS:A CASE STUDY OF TURKISH LIRA

Year 2005, Volume: 1 Issue: 1, 21 - 50, 01.06.2005

Turhan Korkmaz Kazım Aydın

Abstract

Daily VaR numbers have been calculated by using EWMA and GARCH models for the seven currencies. The outcome is GARCH provides slightly more accurate analysis than EWMA. The results are satisfactory for forecasting volatility at 95% and 99% confidence level. These two methods enhance the quality of the VaR models. Interestingly, VaR calculations have predicted the April 1994 and February 2001 devaluation in Turkey. It is also observed that the Turkish Lira’s volatility was low during the crawling peg period. However, after February 2001 free floating period caused the volatility to increase. Therefore, volatility forecasts tend to remain high in the post crises period

Keywords

Volatility EWMA GARCH VaR and Currency

References

  • Alexander, C. (1996); Risk Management and Analysis, John Wiley & Son Ltd., London.
  • Akaike, H. (1973); “Information Theory and the Extension of the Maximum Likelihood Principle” in 2nd International Syposium on Information Theory, B.N. Petrov and F. Csaki, eds., Budapest.
  • Avinash, P. (1998); Event Risk Indicator (ERI), J.P. Morgan Technical Document.
  • Baillie, R., T. Bollerslev ve H.O. Mikkelsen (1996); “Fractionally Integrated Generalized Autoregressive Conditional Heteroskedasticity” Journal of Econometrics, Vol.74, No.1, pp. 3-30.
  • Barone, A. G. ve G. Kostas (2002); “Nonparametric VaR Techniques: Myths And Realities”, http://www.gloriamundi.org/var/pub/gbkgfhs.pdf, 08.05.2002.
  • Best, P. (1999); Implementing Value At Risk, Bidles Ltd., London.
  • Bilson, J.F.O. (1999); “Value at Risk for Emerging Market Currencies” Lecture Notes for a course on: Trading, Investment and Risk Management, Summer School in Econometrics, Italy, June, pp.15-20.
  • Bollerslev, T. (1986). “Generalised Autoregresive Conditional Heteroscedasticity” Journal of Econometrics 31, pp.307-327.
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  • Butler, C. (1999); Mastering Value at Risk, A step-by-step guide to understanding and applying VaR, Financial Times Pitman Publishing, Market Editions, London.
  • Ceylan, A. and T. Korkmaz, (2004); Sermaye Piyasasi ve Menkul Deger Analizi, 2. Baski, Ekin Kitabevi Yayinlari, Bursa.
  • Chou, R. Y. (1988); “Volatility Persistence and Stock Valuations: Some Emperical Evidence Using Garch,”Journal of Applied Econometrics 3, pp. 279-294.
  • Culp, C. L., R. Mensink, and A.M.P. Neves, (1999); “Value at Risk for Asset Managers,” Derivatives Quarterly, Vol.5, No.2.
  • Dowd, K. (2000); Beyond Value At Risk, John Willey & Sons Ltd, London.
  • Engle, R. F. (1982); “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation,” Econometrica, Vol.50, No.1, pp. 987-1007.
  • Fama, E. F. (1965); “The Behavior of Stock Market Prices,” Journal of Business 38, pp. 34-105.
  • Hendricks, D. (1996); “Evaluation of Value at Risk Models Using Historical Data,” Economic Policy Review, Vol.2, No.1, April, Federal Reserve Bank of New York.
  • Jorion, P. (1997); Value at Risk, McGraw-Hill Companies, Inc., New York.
  • _____. (2000). “Türk Bankacilik Sektöründe Risk Yönetimi Semineri,” Dünya Bankası ve Türkiye Bankalar Birliği, 11-12 Şubat 2000, İstanbul.
  • Karelse, J. (2001); “Risk Banished VaR, VaR Away,” Applied Risk Management, June, pp. 75-81.
  • Korkmaz, T. (2001); “The Investment of Emerging Capital Markets and the Role of Derivative Securities” ISE Review, Vol.5, No.17, pp. 63-93.
  • Mandelbort, B. (1963); “The Variation of Certain Speculative Prices,” Journal of Business, Vol.36, pp. 394-419.
  • Morgan, J.P. (1998); Event Risk Indicator Technical Documen.
  • Morgan, J.P. (2003); Web Page, http://www.jpmorgan.com, July, 2003.
  • Nylund, S. (2001); http://www.contingencyanalysis.com/archive, 02.11.2001.
  • Parrondo, J.M.R. (2004); Calculation of the Value at Risk in Emerging Markets, Research Project.
  • Santander Investment, Final Report, http://seneca.fis.ucm.es/parr/BANCO/report/ report.html, 06.07.2004.
  • Penza, P. and V.K. Bansal (2001); Measuring Market Risk with Value At Risk, John Wiley & Sons Inc.,U.S.A.RiskGrades Technical Document.
  • Schacter, B. (2002); “All about Value at Risk, An Irreverent Guide to Value at Risk,” http://www.GloriaMundi.org/var/varintro.htm, 26.06.2002.
  • Schwert, G. W. (1989); “Why Does Stock Market Volatility Change Over Time?,” Journal of Finance, Vol.44, pp.1115-1153.
  • Simons, K. (1996); “Value at Risk-New Approaches to Rsk Management,” New England Economic Review, September/October.
  • T.C.M.B. (2003); Web Page, http://tcmbf40.tcmb.gov.tr/cbt.html, 30.06.2003.

VALUE AT RISK IN EMERGING CURRENCY MARKETS:A CASE STUDY OF TURKISH LIRA

Year 2005, Volume: 1 Issue: 1, 21 - 50, 01.06.2005

Turhan Korkmaz Kazım Aydın

Abstract

Yedi ayrı para birimi için EWMA ve GARCH modelleri kullanılarak günlük VaR rakamları hesaplanmıştır. GARCH modeli EWMA’ya göre daha iyi bir sonuç vermiştir. %95 ve %99 güven seviyelerinde volatilite tahminleri başarılı bulunmuştur. EWMA ve GARCH modelleri VaR modelinin başarısını artırmaktadır. Beklenmedik bir şekilde, VaR hesaplamaları Nisan 1994 ve Şubat 2001 devalüasyonlarını tahmin edebilmiştir. Ayrıca, kriz sonrası dönemlerde volatilite tahminleri yüksek seyretmektedir. Kontrollü parite dönemlerinde Türk Lirasının volatiletisinin düşük, Şubat 2001’den sonra uygulanan serbest dalgalı dönemde ise volatilitede artış olduğu gözlenmiştir.

Keywords

Volatilite EWMA GARCH ve yabancı para

References

  • Alexander, C. (1996); Risk Management and Analysis, John Wiley & Son Ltd., London.
  • Akaike, H. (1973); “Information Theory and the Extension of the Maximum Likelihood Principle” in 2nd International Syposium on Information Theory, B.N. Petrov and F. Csaki, eds., Budapest.
  • Avinash, P. (1998); Event Risk Indicator (ERI), J.P. Morgan Technical Document.
  • Baillie, R., T. Bollerslev ve H.O. Mikkelsen (1996); “Fractionally Integrated Generalized Autoregressive Conditional Heteroskedasticity” Journal of Econometrics, Vol.74, No.1, pp. 3-30.
  • Barone, A. G. ve G. Kostas (2002); “Nonparametric VaR Techniques: Myths And Realities”, http://www.gloriamundi.org/var/pub/gbkgfhs.pdf, 08.05.2002.
  • Best, P. (1999); Implementing Value At Risk, Bidles Ltd., London.
  • Bilson, J.F.O. (1999); “Value at Risk for Emerging Market Currencies” Lecture Notes for a course on: Trading, Investment and Risk Management, Summer School in Econometrics, Italy, June, pp.15-20.
  • Bollerslev, T. (1986). “Generalised Autoregresive Conditional Heteroscedasticity” Journal of Econometrics 31, pp.307-327.
  • Bredin, D. and Hyde, S. (2004). “FOREX Risk: Measurement and Evaluation Using Value-at-Risk,”http://www.gloriamundi.org/picsresources/dbsh.pdf, 18.06. 2004.
  • Butler, C. (1999); Mastering Value at Risk, A step-by-step guide to understanding and applying VaR, Financial Times Pitman Publishing, Market Editions, London.
  • Ceylan, A. and T. Korkmaz, (2004); Sermaye Piyasasi ve Menkul Deger Analizi, 2. Baski, Ekin Kitabevi Yayinlari, Bursa.
  • Chou, R. Y. (1988); “Volatility Persistence and Stock Valuations: Some Emperical Evidence Using Garch,”Journal of Applied Econometrics 3, pp. 279-294.
  • Culp, C. L., R. Mensink, and A.M.P. Neves, (1999); “Value at Risk for Asset Managers,” Derivatives Quarterly, Vol.5, No.2.
  • Dowd, K. (2000); Beyond Value At Risk, John Willey & Sons Ltd, London.
  • Engle, R. F. (1982); “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation,” Econometrica, Vol.50, No.1, pp. 987-1007.
  • Fama, E. F. (1965); “The Behavior of Stock Market Prices,” Journal of Business 38, pp. 34-105.
  • Hendricks, D. (1996); “Evaluation of Value at Risk Models Using Historical Data,” Economic Policy Review, Vol.2, No.1, April, Federal Reserve Bank of New York.
  • Jorion, P. (1997); Value at Risk, McGraw-Hill Companies, Inc., New York.
  • _____. (2000). “Türk Bankacilik Sektöründe Risk Yönetimi Semineri,” Dünya Bankası ve Türkiye Bankalar Birliği, 11-12 Şubat 2000, İstanbul.
  • Karelse, J. (2001); “Risk Banished VaR, VaR Away,” Applied Risk Management, June, pp. 75-81.
  • Korkmaz, T. (2001); “The Investment of Emerging Capital Markets and the Role of Derivative Securities” ISE Review, Vol.5, No.17, pp. 63-93.
  • Mandelbort, B. (1963); “The Variation of Certain Speculative Prices,” Journal of Business, Vol.36, pp. 394-419.
  • Morgan, J.P. (1998); Event Risk Indicator Technical Documen.
  • Morgan, J.P. (2003); Web Page, http://www.jpmorgan.com, July, 2003.
  • Nylund, S. (2001); http://www.contingencyanalysis.com/archive, 02.11.2001.
  • Parrondo, J.M.R. (2004); Calculation of the Value at Risk in Emerging Markets, Research Project.
  • Santander Investment, Final Report, http://seneca.fis.ucm.es/parr/BANCO/report/ report.html, 06.07.2004.
  • Penza, P. and V.K. Bansal (2001); Measuring Market Risk with Value At Risk, John Wiley & Sons Inc.,U.S.A.RiskGrades Technical Document.
  • Schacter, B. (2002); “All about Value at Risk, An Irreverent Guide to Value at Risk,” http://www.GloriaMundi.org/var/varintro.htm, 26.06.2002.
  • Schwert, G. W. (1989); “Why Does Stock Market Volatility Change Over Time?,” Journal of Finance, Vol.44, pp.1115-1153.
  • Simons, K. (1996); “Value at Risk-New Approaches to Rsk Management,” New England Economic Review, September/October.
  • T.C.M.B. (2003); Web Page, http://tcmbf40.tcmb.gov.tr/cbt.html, 30.06.2003.
There are 32 citations in total.

Details

Primary Language English
Journal Section Research Article
Authors

Turhan Korkmaz This is me

Kazım Aydın This is me

Publication Date June 1, 2005
Published in Issue Year 2005 Volume: 1 Issue: 1

Cite

APA Korkmaz, T., & Aydın, K. (2005). VALUE AT RISK IN EMERGING CURRENCY MARKETS:A CASE STUDY OF TURKISH LIRA. Uluslararası Yönetim İktisat Ve İşletme Dergisi, 1(1), 21-50.