Empirical Issues in Value at Risk Estimation: Time varying Volatility, Fat Tails and Parameter Uncertainty

This paper describes alternative approaches to estimate the Value at Risk (VaR) of a position. Four methods are compared: the unconditional case, the model with time varying drift (modeled as an AR(l) process), the model with time varying drift and time varying volatility (modeled as a GARCH(I,l) process) with error terms that are normally distributed, and the model with time varying drift and time varying volatility with error terms that are Student-t distributed...