Research on the value at risk of basis for stock index futures hedging in China based on two-state Markov process and semiparametric RS-GARCH model

DOI10.1155/2019/8904162MaRDI QIDQ2296591zbMATH OpenOpenAlexWikidataFDO

Authors Liang Wang, Tingjia Xu, Longhao Qin, Chenge Liu

Publication date 18 February 2020

Published in Discrete Dynamics in Nature and Society (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1155/2019/8904162

Mathematics Subject Classification ID

Statistical methods; risk measures (91G70)

Review text

Summary: This article aims to investigate the Value at Risk of basis for stock index futures hedging in China. Since the RS-GARCH model can effectively describe the state transition of variance in VaR and the two-state Markov process can significantly reduce the dimension, this paper constructs the parameter and semiparametric RS-GARCH models based on two-state Markov process. Furthermore, the logarithm likelihood function method and the kernel estimation with invariable bandwidth method are used for VaR estimation and empirical analysis. It is found that the three fitting errors (MSE, MAD, and QLIKE) of conditional variance calculated by semiparametric model are significantly smaller than that of the parametric model. The results of Kupiec backtesting on VaR obtained by the two models show that the failure days of the former are less than or equal to that of the latter, so it can be inferred that the semiparametric RS-GARCH model constructed in this paper is more effective in estimating the Value at Risk of the basis for Chinese stock index futures. In addition, the mean value and standard deviation of VaR obtained by the semiparametric RS-GARCH model are smaller than that of the parametric method, which can prove that the former model is more conservative in risk estimation.

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Cites work

• Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation
• Autoregressive conditional heteroskedasticity and changes in regime
• Generalized autoregressive conditional heteroscedasticity
• Markov-Switching GARCH Modelling of Value-at-Risk
• The \(L^2\)-structures of standard and switching-regime GARCH models

Cited in

(9)

• Research on RMB exchange rate volatility risk based on MSGARCH-VaR model
• The application of a SPAN system based on a VaR model in margin level setting of Chinese stock index futures
• Research on market risk measures considering impacts of spot-future spread upon high-order moments
• The financial measurement of VaR under the GARCH model based on empirical distribution
• Combine GARCH model and neural networks to forecast Value at Risk (VAR) in the futures market
• Hybrid method of using neural networks and ARMA model to forecast value at risk (VAR) in the Chinese stock market
• Research on optimal hedging ratio of Chinese stock market based on higher moments HAR model
• A theoretical framework incorporating the basic convergence effect in the value-at-risk model
• A risk measurement study evaluating the impact of COVID-19 on China's financial market using the QR-SGED-EGARCH model

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