Validation of VaR Models for Bonds

Student: Dumenkov Maxim

Supervisor: Victor A Lapshin

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Year of Graduation: 2020

Value-at-Risk models have become a ubiquitous measure used in risk management. The VaR models for bonds differ from the models used for stocks. Bond models use more complex models based on theory, but there has been little empirical attempt to use simplified models. In this paper, this study was conducted for three var estimation methods. Only the historical simulation test withstood backtesting at all levels of significance, while the GARCH(1,1) - based model and RiskMetrics were successful in only a small number of tests. As a result, it is impossible to discard the hypothesis that the method of historical simulation is good at estimating value at risk.

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