Authors: Evangelos Vasileiou, Ioannis Rizopoulos

Title: Econometric Advances and Accurate VaR estimations: empirical evidence and practical implications from the volatile Turkish Lira FX Market

Abstract

This note tests the benefits of the econometric advantages in the field of Value at Risk (VaR) estimation. We test several VaR models, from the simplest and the most easily applied, i.e. the Historical VaR (HVaR), Variance Covariance VaR (VCVaR), and the Exponential Weighted Moving Average VaR (EWMAVaR), to advanced models such as GARCH(1,1) and EGARCH(1,1,1).  We test these models by examining the extreme volatile FX market of the Turkish Lira (TRY) and we evaluate the models according to the criteria set by the legal framework on VaR. The empirical findings suggest that the HVaR model is a very reliable model if the goal of a risk manager is to satisfy the legislation requirements and the conclusion we can draw is that the econometric advantages lead to more accurate and more representative VaR estimations than the HVaR.