Comparison of Value at Risk (VaR) Multivariate Forecast Models

We investigate the performance of VaR (Value at Risk) forecasts, considering different multivariate models: HS (Historical Simulation), DCC-GARCH (Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroskedasticity) with normal and Student’s t distribution, GO-GARCH (Generalized Orthogonal-Generalized Autoregressive Conditional Heteroskedasticity), and copulas Vine (C-Vine, D-Vine, and R-Vine). For copula models, we consider that marginal distribution follow normal, Student’s t and skewed Student’s t distribution. We assessed the performance of the models using stocks belonging to the Ibovespa index during the period from January 2012 to April 2022. We build portfolios with 6 and 12 stocks considering two strategies to form the portfolio weights. We use a rolling estimation window of 500 and 1000 observations and 1%, 2.5%, and 5% as significance levels for the risk estimation. To evaluate the quality of the risk forecasts, we compute the realized loss and cost. Our results show that the performance of the models is sensitive to the use of different significance levels, rolling windows, and strategies to determine portfolio weights. Furthermore, we find that the model that presents the best trade-off between the costs from risk overestimation and underestimation does not coincide with the model suggested by the realized loss.