Exercise

Sensitivity of coverage to distribution model

A GARCH model is a collection of assumptions regarding the mean, the variance and the distribution. A naive approach is to assume a normal distribution. This model is not a realistic model in case of analyzing stock returns, like the daily Microsoft returns. A skewed student t distribution is a better description of its distribution. You will see that this becomes clear by comparing the coverage of the 5% value-at-risk under the normal distribution and skewed student t distribution.

Instructions 1/3

XP

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Specify that you wish to use a normal distribution and keep all other arguments at their default value.
Specify that you wish to use a skewed student t distribution.

Take Hint (-10 XP)