Value at Risk with time varying variance, skewness and kurtosis-the NIG-ACD model

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Abstract

A new model for financial returns with time varying variance, skewness and kurtosis based on the Normal Inverse Gaussian (NIG) distribution is proposed. The new model and two previously suggested NIG models are evaluated by their Value at Risk (VaR) forecasts on a long series of daily Standard and Poor's 500 returns. All three models perform very well compared with extant models and clearly outperform a Gaussian GARCH model. Moreover, the results show that only the new model cannot be rejected as providing correct conditional VaR forecasts.

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Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • Time varying skewness, Value at Risk, Time varying kurtosis, GARCH, Normal inverse Gaussian distribution
Original languageEnglish
Pages (from-to)82-104
JournalEconometrics Journal
Volume12
Issue number1
Publication statusPublished - 2009
Publication categoryResearch
Peer-reviewedYes