A STUDY ON THE DCC-GARCH MODEL’S FORECASTING ABILITY WITH VALUE-AT-RISK APPLICATIONS ON THE SCANDINAVIAN FOREIGN EXCHANGE MARKET

Detta är en Kandidat-uppsats från Uppsala universitet/Statistiska institutionen; Uppsala universitet/Statistiska institutionen

Sammanfattning: This thesis has treated the subject of DCC-GARCH model’s forecasting ability and Value-at- Risk applications on the Scandinavian foreign exchange market. The estimated models were based on daily opening foreign exchange spot rates in the period of 2004-2013, which captured the information in the financial crisis of 2008 and Eurozone crisis in the early 2010s. The forecasts were performed on a one-day rolling window in 2014. The results show that the DCC-GARCH model accurately predicted the fluctuation in the conditional correlation, although not with the correct magnitude. Furthermore, the DCC-GARCH model shows good Value-at-Risk forecasting performance for different portfolios containing the Scandinavian currencies.

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