Artifactual unit root behavior of Value at risk (VaR)

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

2 Scopus Citations
View graph of relations



Original languageEnglish
Pages (from-to)88-93
Journal / PublicationStatistics and Probability Letters
Publication statusPublished - 1 Sept 2016
Externally publishedYes


An effective model for time-varying quantiles of a time series is of considerable practical importance across various disciplines. In particular, in financial risk management, computation of Value-at-risk (VaR), one of the most popular risk measures, involves knowledge of quantiles of portfolio returns. This paper examines the random walk behavior of VaRs constructed under two most common approaches, viz. historical simulation and the parametric approach using GARCH models. We find that sequences of historical VaRs appear to follow a unit root model, which can be an artifact under some settings, whereas its counterpart constructed via the parametric approach does not follow a random walk model by default.

Research Area(s)

  • Quantiles, Unit root, Value-at-risk

Bibliographic Note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to

Citation Format(s)