VaR: Exchange Rate Risk and Jump Risk

Table 4

Model accuracy using backtesting for small portfolios in various weights of domestic assets.

Period I					Period II
2004/1/1–2007/7/31					2007/8/1–2009/11/27
Domestic Weights	Sample number	VaR	Number of exceptions	LRuc	Sample number	VaR	Number of exceptions	LRuc
Panel A: based on historical simulations
0	780	−0.0438	11	1.1763	587	−0.0694	6	0.1371
0.1	780	−0.0409	8	0.0051	587	−0.0598	8	0.7012
0.2	780	−0.0396	10	0.5755	587	−0.0513	8	0.7012
0.3	780	−0.0381	8	0.0051	587	−0.0466	5	0.1371
0.4	780	−0.0369	6	0.4558	587	−0.0412	5	0.1371
0.5	780	−0.0356	10	0.5755	587	−0.0398	10	2.4240
0.6	780	−0.0368	10	0.5755	587	−0.0389	10	2.4240
0.7	780	−0.0375	11	1.1763	587	−0.0386	8	0.7012
0.8	780	−0.0378	13	2.9166	587	−0.0385	8	0.7012
0.9	780	−0.0375	13	2.9166	587	−0.0383	8	0.7012
1	780	−0.0371	13	2.9166	587	−0.0380	8	0.7012
Panel B: based on analytical VaR
0	780	−0.0533	6	0.4558	587	−0.0804	0	11.7990*
0.1	780	−0.0481	6	0.4558	587	−0.0728	1	6.2410*
0.2	780	−0.0436	6	0.4558	587	−0.0659	2	3.4589
0.3	780	−0.0401	6	0.4558	587	−0.0598	2	3.4589
0.4	780	−0.0377	4	2.2760	587	−0.0549	2	3.4589
0.5	780	−0.0366	7	0.0858	587	−0.0516	3	1.7267
0.6	780	−0.0371	7	0.0858	587	−0.0503	2	3.4589
0.7	780	−0.0389	9	0.1777	587	−0.0501	2	3.4589
0.8	780	−0.0419	9	0.1777	587	−0.0502	3	1.7267
0.9	780	−0.0458	9	0.1777	587	−0.0487	4	0.6775
1	780	−0.0504	9	0.1777	587	−0.0547	6	0.0029

Note that this table displays backtesting in terms of in-sample fitting for alternative weights of domestic assets. The critical value is 3.84 at a significant level of 5%. The symbol * denotes the significance at a 5% level. The VaRs are the maximum losses of the initial investment of 1 New Taiwan dollar (NTD) over a one-day horizon.