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30 oktober 2018 Onderzoek

Auteurs

• Kai Schindelhauer
• Chen Zhou
This paper investigates the prediction of Value-at-Risk (VaR) using option-implied information obtained by the maximum entropy method. The maximum entropy method provides an estimate of the risk-neutral distribution based on option prices. Besides commonly used implied volatility, we obtain implied skewness, kurtosis and quantile from the estimated risk-neutral distribution. We find that using the implied volatility and implied quantile as explanatory variables significantly outperforms considered benchmarks in predicting the VaR, including the commonly used GARCH(1,1)-model. This holds for all considered VaR prediction models and VaR probability levels. Overall, a simple quantile regression model performs best for all considered VaR probability levels and forecast horizons.

Keywords: Implied Quantile, GARCH, Quantile Regression, Comparative Backtest.
JEL Classifications: C14, G17.

Working paper no. 613

613 - Value at Risk prediction using option-implied risk measures

1,1MB PDF