Exercise

Comovement between predicted vol and VaR

The value-at-risk plots shows substantial time-variation in the downside risk. This time-variation is mostly driven by the time-variation in the return volatility. In this exercise, you will verify that this is the case for the daily Microsoft returns by plotting in one figure both the 5% value-at-risk and the estimated volatility. The object garchroll holding the output of a rolling GARCH estimation is already available to you in the console.

Instructions

100 XP

Obtain the data frame with mean and volatility predictions from garchroll.
Use the appropriate method method to extract the 5% VaR from garchroll .
Extract the volatility from garchpreds.
Analyze the comovement in a time series plot.