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

Ze-To, S. 2012. Estimating value-at-risk under a Heath––Jarrow––Morton framework with jump. Applied Economics. 44 (21), pp. 2279-2741. https://doi.org/10.1080/00036846.2011.566198

TitleEstimating value-at-risk under a Heath––Jarrow––Morton framework with jump
TypeJournal article
AuthorsZe-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.

Keywordsvalue-at-risk; interest rate modeling; options pricing; HJM model
JournalApplied Economics
Journal citation44 (21), pp. 2279-2741
ISSN0003-6846
1466-4283
Year2012
PublisherTaylor & Francis
Digital Object Identifier (DOI)https://doi.org/10.1080/00036846.2011.566198
Publication dates
Published17 Jun 2011
Published in print2012

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