Exercise

# Compute empirical VaR

In this exercise, you will practice estimating dynamic 5% daily VaRs with an empirical approach.

The difference between parametric VaR and empirical VaR is how the quantiles are estimated. The parametric approach estimates quantiles from an assumed distribution assumption, while the empirical approach estimates quantiles from an observed distribution of the standardized residuals.

You will use the same GARCH model as the previous exercise. The mean and variance forecasts are saved in `mean_forecast`

and `variance_forecast`

respectively. The empirical standardized residuals have also been calculated and saved in `std_resid`

.

Instructions

**100 XP**

- Compute 0.05 quantile from the GARCH standardized residuals
`std_resid`

. - Calculate VaR using
`mean_forecast`

,`variance_forecast`

from the GARCH model and the quantile from the previous step.