An Evaluation Framework for Alternative VaR Models

W.F.M. Bams, T. Lehnert, C.C.P. Wolff*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


In this paper we investigate the ability of different models to produce useful var-estimates for exchange rate positions. Our analysis shows that it is important to take into account parameter uncertainty, since this leads to uncertainty in the predicted var. We make this uncertainty in the var explicit by means of simulation. Our empirical results suggest that more sophisticated tail-modeling approaches come at the cost of more uncertainty about the var-estimate itself. We show how to adjust var calculations in order to take the parameter uncertainty into account. This is accomplished through a data-driven method to deliver not just a point estimate of the var, but a region.
Original languageEnglish
Pages (from-to)944-958
JournalJournal of International Money and Finance
Issue number6
Publication statusPublished - 1 Jan 2005

Cite this