Forecasting portfolio value-at-risk via DCC-MGARCH Model: Impact of Brexit on Valuation of UK Pound and Indian Rupee

In this paper, we will implement the DCC (Dynamic Conditional Correlational) MGARCH model to forecast the VaR (Value at Risk) for a given portfolio. We have taken data on the exchange rate of Indian rupee with US Dollars, Euro and British Pound. We will try to predict the volatility from the DCC MGA...

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Bibliographic Details
Published in:Journal of international economics (Hyderabad, India) India), 2016-07, Vol.7 (2), p.56
Main Authors: Sharma, Rahul, Mathur, Somesh K
Format: Article
Language:English
Subjects:
Confidence intervals
Economic forecasting
Economic models
EU membership
Expected values
Forecasting
Foreign exchange rates
Kurtosis
Performance evaluation
Rupees
Standard deviation
Stochastic models
Valuation
Value added
Volatility
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Summary:In this paper, we will implement the DCC (Dynamic Conditional Correlational) MGARCH model to forecast the VaR (Value at Risk) for a given portfolio. We have taken data on the exchange rate of Indian rupee with US Dollars, Euro and British Pound. We will try to predict the volatility from the DCC MGARCH model and see how Brexit have affected the rates of return in terms of the Indian rupee. For our calculations, we have assumed an equal weighted portfolio. At the end of paper, we will evaluate our model performance by analyzing the forecast error using predictions failure and average deviations between VAR and realized returns.
ISSN:0976-0792