Value at Risk as a Tool for Mutual Funds Performance Evaluation

Abstract

The present study addressed the measurement of one-day-ahead Value at Risk (VaR) of Iranian mutual funds using GARCH parametric method and Monte Carlo Simulation non-parametric method. The Kupiec back testing results showed that both methods enjoy a high level of accuracy but based on simplified assumption of return distribution function in the parametric approach; Monte Carlo simulation produced better results. Furthermore, the adjusted Sharpe ratio and VaR were used to investigate the performance evaluation of the mutual funds.