Measuring the Effectiveness of VaR in Indian Stock Market

  IJETT-book-cover  International Journal of Engineering Trends and Technology (IJETT)          
© 2018 by IJETT Journal
Volume-64 Number-1
Year of Publication : 2018
Authors : N. Sai Pranav, Satya Sai Mudigonda, R.Prabhakara Rao
DOI :  10.14445/22315381/IJETT-V64P210


MLA Style: N. Sai Pranav, Satya Sai Mudigonda, R.Prabhakara Rao "Measuring the Effectiveness of VaR in Indian Stock Market" International Journal of Engineering Trends and Technology 64.1 (2018): 53-61.

APA Style:N. Sai Pranav, Satya Sai Mudigonda, R.Prabhakara Rao (2018). Measuring the Effectiveness of VaR in Indian Stock Market. International Journal of Engineering Trends and Technology, 64(1), 53-61.

Given the growing need for managing financial risks, risk prediction which is critical for the success of any business has now gained more importance, especially in the financial markets. The financial managers, the actuaries, the stock brokers and the regulatory authority such as SEBI have one common goal is to reduce risk of their investments. To understand and mitigate these risks several approaches were suggested one among them is Value at Risk method which answers the question of “What is the most I will lose if I invest in particular security or an asset?” This study has been taken up to estimate the risk involved in the Indian Stock Market by taking the daily data from 1st April 2007 to 31st March 2017. This study employs various Value at Risk methods such as Variance-Covariance Method, Monte Carlo Simulation using Brownian Motion, Filtered Historical Simulation, Generalised extreme value method, t Copula, Exponential Weighted Moving Average, GARCH and Hybrid models. To assess the risk in NIFTY 50, we have selected the sectoral indices of Nifty Bank, Nifty IT, Nifty Private Bank, Nifty FMCG and Nifty Financial Services. We have calculated the risk for all these sectorial indices at 95% and 99% confidence level by using aforementioned methods. After evaluating these models, it has been observed that the hybrid method with GJR GARCH–EVT-t Copula model, performed better when compared to other methods considered in this study. The Empirical results clearly validates that the maximum loss and gain of GJR GARCH-EVT-t Copula based approach which outperforms traditional VaR.

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VaR, GARCH, EVT, Copula