Estimating value-at-risk under a Heath--Jarrow--Morton framework with jump
This article proposes a new methodology for measuring Value-at-Risk (hereafter VaR) using a model that incorporates both volatility and jumps. Heath--Jarrow--Morton (HJM) model has been used for the valuation of interest rate derivatives. This study extends the use of HJM model to the estimation VaR. This article specifically uses a two-factor HJM jump-diffusion model for the computation. The study models the Eurodollar futures prices using its derivatives. In addition, this article uses a new volatility specification of Ze-To (2002) to construct the HJM dynamics. The result indicates that the VaR model using HJM jump-diffusion framework performs well in capturing the nonnormality and in providing accurate VaR forecasts in the in-sample and out-sample tests.
Year of publication: |
2012
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Authors: | Ze-To, Samuel Yau Man |
Published in: |
Applied Economics. - Taylor & Francis Journals, ISSN 0003-6846. - Vol. 44.2012, 21, p. 2729-2741
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Publisher: |
Taylor & Francis Journals |
Saved in:
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