Bayesian value-at-risk with product partition models

DOI10.1080/14697680903512786MaRDI QIDQ2869966zbMATH OpenOpenAlexFDO

Authors Maria Elena De Giuli, Claudia Tarantola, Giacomo Bormetti, Danilo Delpini

Publication date 17 January 2014

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0809.0241

zbMATH Keywords

Monte Carlo methodsvalue at riskstatistical physicsnon-Gaussian distributions

Mathematics Subject Classification ID

Bayesian inference (62F15) Applications of statistics to actuarial sciences and financial mathematics (62P05) Statistical methods; economic indices and measures (91B82) Statistical methods; risk measures (91G70)

Abstract: In this paper we propose a novel Bayesian methodology for Value-at-Risk computation based on parametric Product Partition Models. Value-at-Risk is a standard tool to measure and control the market risk of an asset or a portfolio, and it is also required for regulatory purposes. Its popularity is partly due to the fact that it is an easily understood measure of risk. The use of Product Partition Models allows us to remain in a Normal setting even in presence of outlying points, and to obtain a closed-form expression for Value-at-Risk computation. We present and compare two different scenarios: a product partition structure on the vector of means and a product partition structure on the vector of variances. We apply our methodology to an Italian stock market data set from Mib30. The numerical results clearly show that Product Partition Models can be successfully exploited in order to quantify market risk exposure. The obtained Value-at-Risk estimates are in full agreement with Maximum Likelihood approaches, but our methodology provides richer information about the clustering structure of the data and the presence of outlying points.

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Cited in

(5)

• Remaining useful life prediction: A multiple product partition approach
• On Bayesian value at risk: from linear to non-linear portfolios
• Nonparametric product partition models for multiple change-points analysis
• Product partition latent variable model for multiple change-point detection in multivariate data
• Calibrating covariate informed product partition models

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