It Works on the Effect of Subprime Crisis on Var Estimation

Vol. 1, No. 2

International Journal of Economics and Finance

On the Effect of Subprime Crisis on Value-at-Risk Estimation:

GARCH Family Models Approach

Khaled Mokni

Institut Supérieur de Gestion de Sousse

Rue Abedelaziz El Bahi - B.P. 763 - 4000 Sousse, Tunisia

Tel : 216-9776-8204

E-mail: Khaled.Mokni@isgs.rnu.tn

Zouheir Mighri

Institut Supérieur de Gestion de Sousse

Rue Abedelaziz El Bahi - B.P. 763 - 4000 Sousse, Tunisia

Tel : 216-9612-0186

E-mail: zouheir.mighri@yahoo.fr

Faysal Mansouri

Institut des Hautes Etudes Commerciales de Sousse

Route Hzamia Sahloul 3 - B.P. 40 - 4054 Sousse, Tunisia

E-mail: faysal.mansouri@fseg.rnu.tn

Abstract

A survey of the risk management literature shows that few studies have attempted to take into account financial crisis in

market risk measurement, in particular when using a Value-at Risk (VaR) analysis. In this paper, we use models to

investigate the effects of subprime crisis on the Value-at-Risk estimation. In this framework, we investigate GARCH

family models such as, GARCH, IGARCH, and GJR-GARCH. Each is adjusted based on three residuals distributions;

normal, Student and Skewed Student-t. Using American stock market data, we show that dynamic volatility is different

between the stability and during crisis periods. The estimation results indicate that the amount of VaR is different

during these two time periods. This finding could be explained by the volatility clustering effect. The empirical results

show also that GJR-GARCH model performs better in both sub-sample periods, in comparison with GARCH and

IGARCH models. Moreover, we conclude that Student-t and Skewed Student-t distributions are preferred in the stable

period while the normal distribution is recommended during the turbulent period.

Keywords: Value-at–Risk, Subprime crisis, Risk management, Market risk, Risk measure, GARCH, Volatility

asymmetry.

1. Introduction

In the last few years, risk management has known an...