Estimating the Value-at-Risk for some stocks at the capital market in Indonesia based on ARMA-FIGARCH models

Abstract

Value-at-Risk has already become a standard measurement that must be carried out by the financial institution for both internal interest and regulatory. In this paper, the estimation of Value-at-Risk of some stocks with econometric models approach is analyzed. In this research, we assume that the stock return follows the time series model. To do the estimation of mean value we are using ARMA models, while to estimate the variance value we are using FIGARCH models. Furthermore, the mean value estimator and the variance are used to estimate the Value-at-Risk. The result of the analysis shows that from five stock PRUF, BBRI, MPPA, BMRI, and INDF, the Value-at-Risk obtained are 0.01791, 0.06037, 0.02550, 0.06030, and 0.02585 respectively. Since Value-at-Risk represents the maximum risk size of each stock at a 95% level of significance, then it can be taken into consideration in determining the investment policy on stocks.