Value at Risk Estimation for Stock Indices Using the Basle Committee Proposal from 1995

This paper compares different models for volatility forecasts with respect to the value at risk performance (VaR) for daily stock index returns. The VaR measures the potential loss of a portfolio for the next period at a given significance level. We will focus on the question if the choice of the appropriate volatility forecasting model is important for the VaR estimation. We compare the forecasting performance of several volatility models for the returns of the MSCI North America, the MSCI Europe and the MSCI Pacific indices. The resulting VaR estimators are evaluated with different criteria and with respect to the proposal of the Basle Committee from 1995. We propose an alternative calculation of the market risk charge (MRC)