Abstract
When we model returns using a GARCH process with normally distributed innovations, we have already taken into account the second stylized fact (see Chap. 13). The distribution of the random returns automatically has a leptokurtosis and larger losses occurring more frequently than under the assumption that the returns are normally distributed. If one is interested in the 95 %-VaR of liquid assets, this approach produces the most useful results.
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Franke, J., Härdle, W.K., Hafner, C.M. (2015). Statistics of Extreme Risks. In: Statistics of Financial Markets. Universitext. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-54539-9_18
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