Backtesting of Value at Risk Methodology: Analysis of Banking Shares in India

Patra, Biswajit; Padhi, Puja

doi:10.1177/0973801015583739

Cited by 7 publications

(4 citation statements)

References 22 publications

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“…The numerator implies the maximum possibility of the observed result under the null hypothesis, and the denominator implies the maximum possibility of the observed ratio under the alternative hypothesis (Patra & Padhi, 2015).…”

Section: Methodsmentioning

confidence: 99%

Impact of COVID-19 on Market Risk: Appraisal with Value-at-risk Models

Das

Rout

2020

The Indian Economic Journal

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COVID-19 has traumatised the whole world in every aspect ranging from normal day-to-day activities to complete halt of the economies. This piece of work attempted to examine the response of the stock markets to the outbreak of COVID-9 by considering stock indices of five leading countries and comparing the risk with other periods of crisis viz. global financial crisis of 2007-2008 and stock market fluctuation in 1992. Both negative and positive fluctuation are examined, however special emphasis is placed on downside risk. The risk is measured using Value-at-Risk models with different distributional assumptions. The main observation of the study points towards gravity of this deadly virus as the volatility in the stock markets of all the countries is higher even compared to the global crisis of 2008 except China which is quite absurd. On the other hand, global markets are found to be highly correlated in the COVID-19 period. However, investors are also found to be reacting positively when favourable news is transmitted. The findings of this paper will help the investors in understanding the short-run dynamics of the stock markets and use such information in future for investment in similar circumstances.

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Section: Methodsmentioning

confidence: 99%

Impact of COVID-19 on Market Risk: Appraisal with Value-at-risk Models

Das

Rout

2020

The Indian Economic Journal

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“…In the specified equation, the term in the upper division entails the maximum likelihood of the realized outcomes according to the non-alternate hypothesis, and the term in the lower division entails the maximal likelihood of the realized ratio as per the alternate hypothesis reported in the study of Patra and Padhi ( 2015 ).…”

Section: Research Design and Methodologymentioning

confidence: 99%

Downside risk-return volatilities during Covid 19 outbreak: a comparison across developed and emerging markets

Shah

Raza

Hashmi

2022

Environ Sci Pollut Res

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This research study evaluates the impact of the Covid 19 pandemics on the downside risk-return volatilities across the four stock markets of the USA, UK, China, and Pakistan. The pandemic results in severe economic and financial consequences both at micro and macro levels as well as across the stock markets of various countries. The selected stock markets of the USA, UK, Pakistan, and China are significantly affected in terms of both investor risk and return during the pandemic time. The entire period distribution of the risk exhibited the downside risk behavior of both markets and investors’ serious concern regarding their investment strategies. Using high-frequency data from January 2020 to April 2021, the findings of the study reveal more of the downside abnormal returns across both markets. The impact is larger and high in developed markets of USA and UK compared to the emerging markets of China and Pakistan. The outcomes of the various value-at-risk models disclose the higher downside risk implications for all markets, larger for developed countries. Similarly, the three stock markets of the USA, UK, and China were found to be significantly connected during a pandemic. Investors’ reactions were positive and high in case of positive news outbreaks and dwindling in case of negative news and downside impact. The outcomes of the study are useful for investors, portfolio managers, investment advisors, and others to understand the dynamics of the pandemic situation and devise effective strategies to overcome the severities of downside risk.

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“…When making investment decisions, the accuracy of the VaR model is critical. Backtesting is a tool for determining the accuracy of the VaR model's forecast (Patra & Padhi, 2015). Backtesting is at the core of financial supervision activities because the accuracy of risk measurement has implications for solvency capital, which must be taken into account by financial institutions (Evers & Rohde, 2014).…”

Section: Kupiec Backtestingmentioning

confidence: 99%

The Application of Delta Gamma Normal Value at Risk to Measure the Risk in the Call Option of Stock

Astuti,

Sulistianingsih,

Martha

et al. 2024

JTAM

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Call options of stock have a nonlinear dependence on market risk factors, thus encouraging the development of a method capable of measuring the risk of call option of stock, namely the Delta Gamma Normal Value at Risk (DGN VaR) method. The DGN VaR method can provide a more accurate VaR estimate than Delta Normal VaR (DN VaR) because of the Delta and Gamma sensitivity measures in the formula. The DGN VaR method uses the second-order Taylor Polynomial approach to approximate the return of stock price underlying the call option. This research applies the DGN VaR method to analyze the risk of call options of Atlassian Corporation (TEAM) and MicroStrategy Incorporated (MSTR). Both companies operate in the technology sector and are among the top 100 largest software companies based on market capitalization for the analysis period September 21, 2022 to September 21, 2023. The analyzed options in this research consist of in-the-money and out-of-the-money options with several strike prices (K). For in-the-money options, the strike prices are $105, $110, and $115 for TEAM, and $150, $160, and $170 for MSTR, while for out-of-the-money options, the strike prices are $190, $195, and $200 for TEAM, and $330, $340, and $350 for MSTR with varying confidence levels of 80%, 90%, 95%, and 99%. Based on the results of the analysis, the DGN VaR for the analyzed in-the-money option has a greater value than the DGN VaR for the analyzed out-of-the-money option.

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Backtesting of Value at Risk Methodology: Analysis of Banking Shares in India

Cited by 7 publications

References 22 publications

Impact of COVID-19 on Market Risk: Appraisal with Value-at-risk Models

Impact of COVID-19 on Market Risk: Appraisal with Value-at-risk Models

Downside risk-return volatilities during Covid 19 outbreak: a comparison across developed and emerging markets

The Application of Delta Gamma Normal Value at Risk to Measure the Risk in the Call Option of Stock

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