COMPARISON OF VALUE AT RISK METHODS: APPLICATION OF ISE 30

Year 2017, Volume: 6 Issue: 3, 254 - 263, 30.09.2017

Zeynep Ilhan Dalbudak Murat Atan , Veysel Yılmaz

https://doi.org/10.17261/Pressacademia.2017.685

Abstract

Purpose- The main purpose of this paper is to measure the potential
losses of the portfolio obtained from ISE-30 using three different methods with
VaR methods.

Methodology- Historical Simulation, Variance-Covariance Method and
Monte Carlo Simulation are used for the calculation of VaR. These three methods
are examined regarding their results on the portfolios created according to
different criteria. The price series of ISE 30 are used to create different
three portfolios and their VaR results are compared. The performance of VaR
results are checked by backtesting process after calculating VaR. VaR results
are discussed by examining the performance of the methods for each portfolio.

Findings- When the VaR of the portfolios are examined, the lowest VaR
result of three portfolios is obtained in Portfolio 2 which is formed according
to volatility criterion. One of the remarkable results of this study is that,
as mentioned above, V-C and MCS methods give similar results. On the other
hand, VaR results of the Historical Simulation Method are higher, and emerge in
the green area in test process.  Conclusion- It may be advisable for
banks or other investors in the financial sector to move to the top of the
order of preference according to the retrospective test results of TS method
under high confidence level conditions. On the other hand, the results of the
V-K and MCS method should be tested with the Backtesting by extending the
observation period. 

Keywords

Value at Risk, historical simulation method, variance-covariance (parametric) method, Monte Carlo simulation method, ISE 30

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