Modeling VaR for international portfolios

This article models a value at risk (VaR) for financial institutions to manage the market risk of international portfolios in highly integrated global financial markets. Being different from both the Kupiec (1999) model and the Chen and Liao (2009) model for portfolios only valued in one currency, this model splits portfolios into two parts one valued in a domestic currency and the other in foreign currencies. It can be regarded as an incorporation of the Kupiec (1999) model and the Chen and Liao (2009) model, and is more suitable to fit the real world. Using Christoffersen´s independence test (1998) criterion, the proposed model is also reliable for international portfolios before and after the subprime mortgage crisis periods.