NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Simone Manganelli

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Working Papers

September 1999CAViaR: Conditional Value at Risk by Quantile Regression
with Robert F. Engle: w7341
Value at Risk has become the standard measure of market risk employed by financial institutions for both internal and regulatory purposes. Despite its conceptual simplicity, its measurement is a very challenging statistical problem and none of the methodologies developed so far give satisfactory solutions. Interpreting Value at Risk as a quantile of future portfolio values conditional on current information, we propose a new approach to quantile estimation which does not require any of the extreme assumptions invoked by existing methodologies (such as normality or i.i.d. returns). The Conditional Value at Risk or CAViaR model moves the focus of attention from the distribution of returns directly to the behavior of the quantile. We postulate a variety of dynamic processes for updating the...

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