Pulled-to-par returns for zero-coupon bonds historical simulation value at risk

Detalhes bibliográficos
Autor(a) principal: Beleza Sousa, João
Data de Publicação: 2020
Outros Autores: Esquível, Manuel L., Gaspar, R. M.
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: http://hdl.handle.net/10400.21/13480
Resumo: Due to bond prices pull-to-par, zero-coupon bond historical returns are not stationary, as they tend to zero as time to maturity approaches. Given that the historical simulation method for computing value at risk (VaR) requires a stationary sequence of historical returns, zero-coupon bonds' historical returns cannot be used to compute VaR by historical simulation. Their use would systematically overestimate VaR, resulting in invalid VaR sequences. In this paper, we propose an adjustment of zero-coupon bonds' historical returns. We call the adjusted returns "pulled-to-par" returns. We prove that when the zero-coupon bonds' continuously compounded yields-to-maturity are stationary, the adjusted pulled-to-par returns allow VaR computation by historical simulation. We firstly illustrate the VaR computation in a simulation scenario, and then, we apply it to real data on eurozone STRIPS.
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spelling Pulled-to-par returns for zero-coupon bonds historical simulation value at riskHistorical simulationValue at riskZero-coupon bondDue to bond prices pull-to-par, zero-coupon bond historical returns are not stationary, as they tend to zero as time to maturity approaches. Given that the historical simulation method for computing value at risk (VaR) requires a stationary sequence of historical returns, zero-coupon bonds' historical returns cannot be used to compute VaR by historical simulation. Their use would systematically overestimate VaR, resulting in invalid VaR sequences. In this paper, we propose an adjustment of zero-coupon bonds' historical returns. We call the adjusted returns "pulled-to-par" returns. We prove that when the zero-coupon bonds' continuously compounded yields-to-maturity are stationary, the adjusted pulled-to-par returns allow VaR computation by historical simulation. We firstly illustrate the VaR computation in a simulation scenario, and then, we apply it to real data on eurozone STRIPS.SpringerRCIPLBeleza Sousa, JoãoEsquível, Manuel L.Gaspar, R. M.2021-06-24T16:06:22Z2020-05-062020-05-06T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.21/13480engSOUSA, J. Beleza; ESQUÍVEL, Manuel L.; GASPAR, Raquel M. – Pulled-to-par returns for zero-coupon bonds historical simulation value at risk. Journal of Statistical Theory and Practice. ISSN 1559-8608. Vol. 14, N.º 2 (2020), pp. 1-181559-860810.1007/s42519-020-00092-w1559-8616metadata only accessinfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-08-03T10:08:14Zoai:repositorio.ipl.pt:10400.21/13480Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T20:21:25.356903Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv Pulled-to-par returns for zero-coupon bonds historical simulation value at risk
title Pulled-to-par returns for zero-coupon bonds historical simulation value at risk
spellingShingle Pulled-to-par returns for zero-coupon bonds historical simulation value at risk
Beleza Sousa, João
Historical simulation
Value at risk
Zero-coupon bond
title_short Pulled-to-par returns for zero-coupon bonds historical simulation value at risk
title_full Pulled-to-par returns for zero-coupon bonds historical simulation value at risk
title_fullStr Pulled-to-par returns for zero-coupon bonds historical simulation value at risk
title_full_unstemmed Pulled-to-par returns for zero-coupon bonds historical simulation value at risk
title_sort Pulled-to-par returns for zero-coupon bonds historical simulation value at risk
author Beleza Sousa, João
author_facet Beleza Sousa, João
Esquível, Manuel L.
Gaspar, R. M.
author_role author
author2 Esquível, Manuel L.
Gaspar, R. M.
author2_role author
author
dc.contributor.none.fl_str_mv RCIPL
dc.contributor.author.fl_str_mv Beleza Sousa, João
Esquível, Manuel L.
Gaspar, R. M.
dc.subject.por.fl_str_mv Historical simulation
Value at risk
Zero-coupon bond
topic Historical simulation
Value at risk
Zero-coupon bond
description Due to bond prices pull-to-par, zero-coupon bond historical returns are not stationary, as they tend to zero as time to maturity approaches. Given that the historical simulation method for computing value at risk (VaR) requires a stationary sequence of historical returns, zero-coupon bonds' historical returns cannot be used to compute VaR by historical simulation. Their use would systematically overestimate VaR, resulting in invalid VaR sequences. In this paper, we propose an adjustment of zero-coupon bonds' historical returns. We call the adjusted returns "pulled-to-par" returns. We prove that when the zero-coupon bonds' continuously compounded yields-to-maturity are stationary, the adjusted pulled-to-par returns allow VaR computation by historical simulation. We firstly illustrate the VaR computation in a simulation scenario, and then, we apply it to real data on eurozone STRIPS.
publishDate 2020
dc.date.none.fl_str_mv 2020-05-06
2020-05-06T00:00:00Z
2021-06-24T16:06:22Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
format article
status_str publishedVersion
dc.identifier.uri.fl_str_mv http://hdl.handle.net/10400.21/13480
url http://hdl.handle.net/10400.21/13480
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv SOUSA, J. Beleza; ESQUÍVEL, Manuel L.; GASPAR, Raquel M. – Pulled-to-par returns for zero-coupon bonds historical simulation value at risk. Journal of Statistical Theory and Practice. ISSN 1559-8608. Vol. 14, N.º 2 (2020), pp. 1-18
1559-8608
10.1007/s42519-020-00092-w
1559-8616
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dc.publisher.none.fl_str_mv Springer
publisher.none.fl_str_mv Springer
dc.source.none.fl_str_mv reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
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instacron:RCAAP
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