Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2013-04-15
Revision-Date: 2014-03-06
Number: 13-060/III
Author-Name: Lukasz Gatarek
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam
Author-Name: Lennart Hoogerheide
Author-Workplace-Name: VU University Amsterdam
Author-Name: Koen Hooning
Author-Workplace-Name: Delft University of Technology
Author-Name: Herman K. van Dijk
Author-Workplace-Name: Econometric Institute, Erasmus University Rotterdam, and VU University Amsterdam
Title: Censored Posterior and Predictive Likelihood in Left-Tail Prediction for Accurate Value at Risk Estimation
Abstract: Accurate prediction of risk measures such as Value at Risk (VaR) and Expected Shortfall (ES) requires precise estimation of the tail of the predictive distribution. Two novel concepts are introduced that offer a specific focus on this part of the predictive density: the censored posterior, a posterior in which the likelihood is replaced by the censored likelihood; and the censored predictive likelihood, which is used for Bayesian Model Averaging. We perform extensive experiments involving simulated and empirical data. Our results show the ability of these new approaches to outperform the standard posterior and traditional Bayesian Model Averaging techniques in applications of Value-at-Risk prediction in GARCH models.
Classification-JEL: C11, C15, C22, C51, C53, C58, G17
Keywords: censored likelihood, censored posterior, censored predictive likelihood, Bayesian Model Averaging, Value at Risk, Metropolis-Hastings algorithm.
File-Url: https://papers.tinbergen.nl/13060.pdf
File-Format: application/pdf
File-Size: 209054 bytes
Handle: RePEc:tin:wpaper:20130060