Date of Award

5-2019

Degree Type

Creative Project

Degree Name

Master of Science (MS)

Department

Economics and Finance

Committee

Tyler Brough

Committee

Paul Fjeldsted

Committee

Benjamin Blau

Abstract

Filtered historical simulation with an underlying GARCH process can be used as a valuable tool in VaR analysis, as it derives risk estimates that are sensitive to the distributional properties of the historical data of the produced predictive density. I examine the applications to risk analysis that filtered historical simulation can provide, as well as an interpretation of the predictive density as a poor man’s Bayesian posterior distribution. The predictive density allows us to make associated probabilistic statements regarding the results for VaR analysis, giving greater measurement of risk and the ability to maintain the optimal level of risk per tolerance in portfolios to remain compliant with regulations.

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