Estimating value-at-risk under a Heath––Jarrow––Morton framework with jump : WestminsterResearch

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Title	Estimating value-at-risk under a Heath––Jarrow––Morton framework with jump
Type	Journal article
Authors	Ze-To, S.
Abstract	This article proposes a new methodology for measuring Value-at-Risk (hereafter VaR) using a model that incorporates both volatility and jumps. Heath–Jarrow–Morton (HJM) model has been used for the valuation of interest rate derivatives. This study extends the use of HJM model to the estimation VaR. This article specifically uses a two-factor HJM jump-diffusion model for computation. The study models the Eurodollar futures prices using its derivatives. In addition, this article uses a new volatility specification of Ze-To (2002) to construct the HJM dynamics. The result indicates that the VaR model using HJM jump-diffusion framework performs well in capturing the nonnormality and in providing accurate VaR forecasts in the in-sample and out-sample tests.
Keywords	value-at-risk; interest rate modeling; options pricing; HJM model
Journal	Applied Economics
Journal citation	44 (21), pp. 2279-2741
ISSN	0003-6846
	1466-4283
Year	2012
Publisher	Taylor & Francis
Digital Object Identifier (DOI)	https://doi.org/10.1080/00036846.2011.566198
Published	17 Jun 2011
Published in print	2012

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Estimating value-at-risk under a Heath––Jarrow––Morton framework with jump

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