Application of VaR Methodology to Risk Management in the Stock Market in Iran

Abstract

In this paper, the performance of RiskMetrics model for prediction of 1-day and 10-days value at risk were preceded in three confidence levels of 95%, 97.5% and 99%.The main data are TEDPIX Index that their fluctuations can be indicated market risk of Tehran Stock Exchange. Time series of this index has been applied from 21 March 2001 to 20 March 2010 with the total 2172 observations. As well, for validation of models, Kupiec test and Christoffersen test have been applied. The finding of this paper is that Risk Metrics model are good alternatives in modeling volatility and in estimating VaR. Also the results indicate that in Kupiec test for both periods, the accepting models number are equal, but in Christoffersen test, the results indicate that upon increasing the time period, the accepting models number are decreased.