Managing the Risk via the Chi-Squared Distribution in VaR and CVaR with the Use in Generalized Autoregressive Conditional Heteroskedasticity Model

This paper develops a framework for quantifying risk by integrating analytical derivations of Value at Risk (VaR) and Conditional VaR (CVaR) under the chi-squared distribution with empirical modeling via Generalized Autoregressive Conditional Heteroskedasticity (GARCH) processes. We first establish closed-form expressions for VaR and CVaR under the chi-squared distribution, leveraging properties of the inverse regularized gamma function and its connection to the quantile of the distribution. We evaluate the proposed framework across multiple time windows to assess its stability and sensitivity to market regimes. Empirical results demonstrate the chi-squared-based VaR and CVaR, when coupled with GARCH volatility forecasts, particularly during periods of heightened market volatility.

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Publication Details

Journal
Mathematics
Published
2025-04-25
DOI
https://doi.org/10.3390/math13091410
Citations
4
Primary Topic
Statistical Methods and Inference
Type
article
Field-Weighted Citation Impact
10.52
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article

Managing the Risk via the Chi-Squared Distribution in VaR and CVaR with the Use in Generalized Autoregressive Conditional Heteroskedasticity Model

Tao Liu, Qiang Ma, Fazlollah Soleymani
4 citations
Mathematics
Statistical Methods and Inference
10.52
article

Managing the Risk via the Chi-Squared Distribution in VaR and CVaR with the Use in Generalized Autoregressive Conditional Heteroskedasticity Model

Tao Liu, Qiang Ma, Fazlollah Soleymani
article en
4 citations

Abstract

This paper develops a framework for quantifying risk by integrating analytical derivations of Value at Risk (VaR) and Conditional VaR (CVaR) under the chi-squared distribution with empirical modeling via Generalized Autoregressive Conditional Heteroskedasticity (GARCH) processes. We first establish closed-form expressions for VaR and CVaR under the chi-squared distribution, leveraging properties of the inverse regularized gamma function and its connection to the quantile of the distribution. We evaluate the proposed framework across multiple time windows to assess its stability and sensitivity to market regimes. Empirical results demonstrate the chi-squared-based VaR and CVaR, when coupled with GARCH volatility forecasts, particularly during periods of heightened market volatility.

MathematicsVol. 13(9)
Institute for Advanced Studies in Basic Sciences (IR), Harbin Institute of Technology (CN), Northeastern University (CN)
Openalex Percentile: Top 2%
Statistical Methods and Inference
10.52
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