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Quantitative Risk Measurements & High Frequency Data
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Quantitativ e Risk Measurement & High Frequency Data Tezer Yelkenci Motivation Stylized facts Literature Methodology Data Findings Conclusion IUE Quantitative Risk Measurements & High Frequency Data Tezer Yelkenci İzmir University of Economics, İzmir, Turkey RM 496 Project: Risk Management and Insurance May 17th, 2012 Izmir
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Transcript of Quantitative Risk Measurements & High Frequency Data
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
IUE
Quantitative Risk Measurements&
High Frequency Data
Tezer Yelkenci
İzmir University of Economics, İzmir, Turkey
RM 496Project: Risk Management and Insurance
May 17th, 2012 Izmir
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
OversightIUE
1. Motivation
2. Stylized fact
3. Literature
4. Methodology
5. Data
6. Findings
7. Conclusion
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
MotivationIUE
High Frequency Trading
Accuracy of Quantitative Risk Measurement Techniques
6 May 2010, Flash Crash
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
Stylized factsIUE
56% of equity trades in the US and 38% in Europe belong to HFT
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
Stylized factsIUE
6 May 2010, Flash Crash
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
Literature ReviewIUE
Literature
Claudia Ceci:Risk minimizing hedging for a partially observed high frequency data model
Dobrislav Dobrev, Pawel Szersen:The Information Content of High-Frequency Data for Estimating Equity Return Models and Forecasting Risk
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
MethodologyIUE
Value at Risk Methods
Delta-Normal Value at Risk Historical Value at Risk Conditional Value at Risk
Backtesting Methods Dirty Test Kupiec’s POF Test Kupiec’s TUFF Test Basel II’s Traffic Light Test Christoffersen’s Interval Forecast Test Mixed Kupiec-Test
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
Type I & Type II ErrorsIUE
Error Types
Correct Model (p=0.01) Incorrect Model (p=0.03)Excep. PDF CDF PDF CDF
0 8.1% 8.1% 0.0% 0.0%1 20.5% 28.6% 0.4% 0.4%2 25.7% 54.3% 1.5% 1.9%3 21.5% 75.8% 3.8% 5.7%4 13.4% 89.2% 7.2% 12.8%5 6.7% 95.9% 10.9% 23.7%6 2.7% 98.6% 13.8% 37.5%7 1.0% 99.6% 14.9% 52.4%8 0.3% 99.9% 14.0% 66.3%9 0.1% 100.0% 11.6% 77.9%
10 0.0% 100.0% 8.6% 86.6%
1 2 3 4 5 6 7 8 9 10 110
0.05
0.1
0.15
0.2
0.25
0.3
Correct Model (p=0.01)
1 2 3 4 5 6 7 8 9 10 110
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
Incorrect Model (p=0.03)
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
MethodologyIUE
Value at Risk Methods
Delta-Normal Value at Risk Historical Value at Risk Conditional Value at Risk
Backtesting Methods Dirty Test Kupiec’s POF (Proportion of Failures) Test Kupiec’s TUFF (Time Until First Failure)Test Basel II’s Traffic Light Test Christoffersen’s Interval Forecast Test Mixed Kupiec-Test
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
DataIUE
Data Process
ISE100 Index (XU100) & Dow Jones Industrial Index (DJI)
20 Different Equity
Normality Tests
Elemination of undervolumed transactions
24.4824.4024.3224.2424.1624.08
Median
Mean
24.300024.297524.295024.292524.290024.287524.2850
1st Quartile 24.250Median 24.3003rd Quartile 24.350Maximum 24.500
24.284 24.299
24.300 24.300
0.079 0.089
A-Squared 16.45P-Value < 0.005
Mean 24.292StDev 0.084Variance 0.007Skewness -0.134569Kurtosis 0.946996N 483
Minimum 24.050
Anderson-Darling Normality Test
95% Confidence I nterval for Mean
95% Confidence I nterval for Median
95% Confidence I nterval for StDev95% Confidence I ntervals
Summary for AEFES - High Frequency
27.025.524.022.521.019.518.0
Median
Mean
21.921.821.721.621.5
1st Quartile 20.360Median 21.8303rd Quartile 22.760Maximum 26.900
21.498 21.856
21.700 21.900
1.883 2.137
A-Squared 2.43P-Value < 0.005
Mean 21.677StDev 2.002Variance 4.010Skewness 0.037635Kurtosis -0.134347N 482
Minimum 17.110
Anderson-Darling Normality Test
95% Confidence I nterval for Mean
95% Confidence I nterval for Median
95% Confidence I nterval for StDev95% Confidence I ntervals
Summary for AEFES - Daily
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
Findings – XU100IUE
POF TUFF BTLT CIFT MKT
dnVaR hVaR cVaR dnVaR hVaR cVaR dnVaR hVaR cVaR dnVaR hVaR cVaR dnVaR hVaR cVaR
AEFES Rej. Rej. Rej. Acc. Acc. Acc. Acc. Acc. Acc. Rej. Rej. Rej. Rej. Rej. Rej.
AKBNK Rej. Acc. Acc. Acc. Acc. Acc. Rej. Acc. Acc. Acc. Acc. Acc. Rej. Acc. Acc.
ARCLK Rej. Rej. Rej. Acc. Acc. Acc. Rej. Acc. Acc. Acc. Rej. Rej. Rej. Rej. Rej.
ASELS Acc. Acc. Acc. Acc. Acc. Acc. Rej. Acc. Acc. Acc. Acc. Acc. Rej. Rej. Rej.
AYGAZ Acc. Acc. Acc. Acc. Acc. Acc. Rej. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc.
BAGFS Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc.
BOYNR Rej. Acc. Rej. Acc. Acc. Rej. Rej. Acc. Acc. Rej. Acc. Acc. Acc. Acc. Rej.
CIMSA Acc. Acc. Rej. Acc. Acc. Rej. Acc. Acc. Acc. Acc. Acc. Rej. Rej. Acc. Acc.
EREGL Rej. Rej. Acc. Acc. Acc. Acc. Rej. Rej. Acc. Acc. Acc. Acc. Rej. Rej. Acc.
GARAN Rej. Rej. Acc. Acc. Acc. Rej. Rej. Acc. Acc. Acc. Rej. Acc. Rej. Rej. Rej.
XU100 Index
dnVaR, hVaR and cVaR represents Delta-Normal Value at Risk, Historical Simulation Value at Risk and Conditional
Value at Risk
POF stands for Proportion of Failures Test, TUFF indicates Time Until First Failure Test, BTLT represents Basel II’s
Traffic Light Test, CIFT shows Christoffersen’s Interval Forecast Test, and MKT refers to Mixed Kupiec Test
Rej. indicates that the test rejects the accuracy of risk measurement technique and Acc. Indicates that the test
accepts the accuracy of risk measurement technique.
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
Findings – DJIIUE
POF TUFF BTLT CIFT MKT
dnVaR hVaR cVaR dnVaR hVaR cVaR dnVaR hVaR cVaR dnVaR hVaR cVaR dnVaR hVaR cVaR
AXP Rej. Rej. Rej. Acc. Acc. Rej. Acc. Acc. Acc. Acc. Acc. Rej. Rej. Rej. Rej.
BAC Acc. Rej. Rej. Acc. Rej. Rej. Acc. Acc. Acc. Acc. Rej. Rej. Rej. Rej. Rej.
BA Acc. Acc. Rej. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Rej.
CAT Acc. Acc. Rej. Rej. Rej. Rej. Acc. Acc. Acc. Acc. Acc. Acc. Rej. Rej. Rej.
XOM Rej. Rej. Rej. Acc. Acc. Acc. Acc. Acc. Acc. Rej. Rej. Rej. Rej. Rej. Rej.
GE Rej. Rej. Rej. Acc. Acc. Acc. Rej. Acc. Acc. Acc. Rej. Rej. Rej. Rej. Rej.
INTC Rej. Rej. Acc. Acc. Acc. Acc. Rej. Rej. Acc. Acc. Acc. Rej. Acc. Acc. Acc.
IBM Rej. Rej. Rej. Acc. Acc. Rej. Acc. Acc. Acc. Acc. Acc. Rej. Rej. Rej. Rej.
MSFT Acc. Acc. Rej. Acc. Acc. Rej. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Acc. Rej.
WMT Rej. Rej. Rej. Acc. Acc. Rej. Acc. Acc. Acc. Acc. Acc. Rej. Rej. Rej. Rej.
DJI Index
dnVaR, hVaR and cVaR represents Delta-Normal Value at Risk, Historical Simulation Value at Risk and Conditional
Value at Risk
POF stands for Proportion of Failures Test, TUFF indicates Time Until First Failure Test, BTLT represents Basel II’s
Traffic Light Test, CIFT shows Christoffersen’s Interval Forecast Test, and MKT refers to Mixed Kupiec Test
Rej. indicates that the test rejects the accuracy of risk measurement technique and Acc. Indicates that the test
accepts the accuracy of risk measurement technique.
Quantitative Risk
Measurement &
High Frequency Data
Tezer Yelkenci
Motivation
Stylized facts
Literature
Methodology
Data
Findings
Conclusion
ConclusionIUE
5% Significance Level Restriction
Quite good dirty backtesting results
Too many rejections with respect statistical backtests
The need of improved risk measurement techniques for High Frequency Trading
