Empirical Research of VAR on HS 300 Stock Index and HS 300 Stock Future

Abstract

Growing financial market creates unprecedented volatility for investors, so high attention of risk monitoring for assets is required intensively in recent years. There are several ways to monitor Value at risk for single assets or portfolio assets. This project will introduce and use standard historical simulation and trading-weighted historical simulation, variance –covariance to monitor HS 300 stock index and HS 300 stock index future. Additionally, it applies both of two methodologies to compare Value at risk of hedged and unhedged assets. In the end, it can be concluded that different methodology has its own disadvantage and advantage and it needs back testing to test the forecast of VAR model. This project uses trading weighted historical simulation and unconditional coverage to improve and test the forecast of value at risk estimated by historical simulation model.