R help - Jul 2017 - rugarch package: VaRTest()

Dear all,

I want to backtest my Value at Risk output using the VaRTest() function in the
rugarch package. I do not understand if the numeric vector of VaR which needs to
be calculated is in negative or positive terms. Usually VaR is expressed in
positive terms.



Do I have to use positive values for VaR in the VaRTest() formula?



Thanks for your help.





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If you run the example on the help page (example() won't work, but just
copy/paste it) it certainly looks like the intention is that VaR is a left-tail
thing, so usually negative. E.g.
> sum(actual < VaR)
[1] 74
> summary(VaR)
     Index                          VaR          
 Min.   :1991-02-27 00:00:00   Min.   :-0.04919  
 1st Qu.:1992-08-19 18:00:00   1st Qu.:-0.02765  
 Median :1994-02-10 12:00:00   Median :-0.02368  
 Mean   :1994-02-12 12:01:36   Mean   :-0.02492  
 3rd Qu.:1995-08-08 06:00:00   3rd Qu.:-0.02109  
 Max.   :1997-01-30 00:00:00   Max.   :-0.01594  

this is somewhat contrary to conventional definition where VaR is an _upper_
quantile in a _loss_ distribution, which of course differs from the _return_
distribution by sign and a multiplication with the invested amount. I gather,
however, that the conventions are not too solid and may e.g. vary between
textbooks.

-pd  
> On 29 Jul 2017, at 16:11 , T.Riedle <tr206 at kent.ac.uk> wrote:
> 
> Dear all,
> 
> I want to backtest my Value at Risk output using the VaRTest() function in
the rugarch package. I do not understand if the numeric vector of VaR which
needs to be calculated is in negative or positive terms. Usually VaR is
expressed in positive terms.
> 
> 
> 
> Do I have to use positive values for VaR in the VaRTest() formula?
> 
> 
> 
> Thanks for your help.
> 
> 
> 
> 
> 
> 	[[alternative HTML version deleted]]
> 
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-- 
Peter Dalgaard, Professor,
Center for Statistics, Copenhagen Business School
Solbjerg Plads 3, 2000 Frederiksberg, Denmark
Phone: (+45)38153501
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Email: pd.mes at cbs.dk  Priv: PDalgd at gmail.com