Evaluation of Value-at-Risk Models Using Historical Data

[...]We begin by explaining the three most commoncategories of value-at-risk models—equally weighted movingaverage approaches, exponentially weighted movingaverage approaches, and historical simulation approaches.Although within these three categories many differentapproaches exist, for the purposes of this article we select fiveapproaches from the first category, three from the second,and four from the third.By employing a simulation technique using thesetwelve value-at-risk approaches, we arrived at measures ofprice risk for the portfolios at both 95 percent and 99 percentconfidence levels over one-day holding periods. The confidencelevels specify the probability that losses of aportfolio will be smaller than estimated by the risk measure.Although this article considers value-at-risk models twelve approaches we examine is superior on every count.In addition, as the results make clear, the choice of confidencelevel—95 percent or 99 percent—can have a substantialeffect on the performance of value-at-riskapproaches.[...]