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Category: Business and Industry
Date Submitted: 12/07/2015 02:36 PM
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...