An empirical evaluation of Value-at-Risk: The case of the Belgrade Stock Exchange index - BELEX15

Abstract

The subject of the research is to test and analyze VaR (Value-at-Risk) methods of market risk management on the financial market of the Republic of Serbia. Thus, concrete research is conducted in the period 2005 - 2011, with the goal of VaR methods performance assessment on the Serbian financial market. The tested VaR methods are Historical simulation (HS) and Delta normal VaR with 95% and 99% confidence level for 50, 100, 200 and 250 days. BELEX15 stock index of the Belgrade Stock Exchange, which comprises of 15 most liquid securities of the Serbian financial market, is used as a benchmark indicator of the conditions on the Serbian financial market. The goals which are intended for achieving in the research are focused to Historical simulation (HS) and Delta normal VaR performance assessment on, according to many criteria, 'specific'-transitory financial market of the Republic of Serbia. The basic goal of the research is to come to concrete, practically tested, knowledge about the possibility and performance of VaR methods application on the financial market of the Republic of Serbia in function of investment decisions optimizing. Research results point to the necessity of VaR methods application in market risk management on the financial market of the Republic of Serbia.

Keywords

• value-at-risk
• historical simulation
• delta normal var
• risk management
• market risk