Value-at-Risk and backtesting with the APARCH model and the standardized Pearson type IV distribution

TL;DR

This paper evaluates the APARCH model with standardized Pearson type IV residuals for Value-at-Risk estimation, demonstrating its accuracy and potential for improved financial risk management.

Contribution

It introduces the use of the standardized Pearson type IV distribution within the APARCH model for risk measurement, highlighting its effectiveness over traditional models.

Findings

The APARCH model with Pearson type IV residuals performs well in risk estimation.

The model is effective across various loss functions and statistical tests.

It offers a valuable skewed distribution option for risk management tools.

Abstract

We examine the efficiency of the Asymmetric Power ARCH (APARCH) model in the case where the residuals follow the standardized Pearson type IV distribution. The model is tested with a variety of loss functions and the efficiency is examined via application of several statistical tests and risk measures. The results indicate that the APARCH model with the standardized Pearson type IV distribution is accurate, within the general financial risk modeling perspective, providing the financial analyst with an additional skewed distribution for incorporation in the risk management tools.