Practical Volatility and Correlation Modeling for Financial Market Risk Management / Torben G. Andersen, Tim Bollerslev, Peter F. Christoffersen, Francis X. Diebold.

Format:

Book

Author/Creator:

Andersen, Torben G.

Contributor:

National Bureau of Economic Research.

Bollerslev, Tim.

Christoffersen, Peter F.

Diebold, Francis X.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11069.

NBER working paper series no. w11069

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

What do academics have to offer market risk management practitioners in financial institutions? Current industry practice largely follows one of two extremely restrictive approaches: historical simulation or RiskMetrics. In contrast, we favor flexible methods based on recent developments in financial econometrics, which are likely to produce more accurate assessments of market risk. Clearly, the demands of real-world risk management in financial institutions -- in particular, real-time risk tracking in very high-dimensional situations -- impose strict limits on model complexity. Hence we stress parsimonious models that are easily estimated, and we discuss a variety of practical approaches for high-dimensional covariance matrix modeling, along with what we see as some of the pitfalls and problems in current practice. In so doing we hope to encourage further dialog between the academic and practitioner communities, hopefully stimulating the development of improved market risk management technologies that draw on the best of both worlds.

Notes:

Print version record

January 2005.