A comparative analysis of different value at risk estimation methods: empirical evidence

Abstract

Value at Risk reveals the maximum expected loss over a given horizon period at a given level of confidence under normal market conditions. Value at Risk is the maximum expected loss over a given horizon period at a given level of confidence. Despite that the definition of Value at Risk is simple and comprehensible, the direct application of the methodology in the daily practice of commercial banks is not so straightforward as it might seem at first, because there are several alternative Value at Risk estimation methods. Each of them is based on a specific set of assumptions, each is applicable in specific situations and conditions, each has its own advantages and drawbacks. The objective of the article was to compare different Value at Risk estimation methods. The results of the empirical comparative analysis of different Value at Risk estimation methods were disclosed and compared with the results of other similar studies.