Comparison of Machine Learning Models for Value at Risk Calculations in the Chemistry Index
Keywords:Machine Learning, Value at Risk, Istanbul Stock Exchange
Value at Risk (VaR) calculation is one of the critical issues in portfolio management. As the calculation system becomes more complex, there is an increasing need for computer applications. In VaR calculation using machine learning has become a commonly used method. With machine learning, VaR can be calculated using various methods, different ML algorithms, and varying time horizons. This flexibility allows for more robust and adaptable risk assessment in portfolio management.
In this study, a portfolio was constructed by using the four largest-volume stocks in the chemistry index (XKMYA) of Borsa İstanbul (Istanbul Stock Exchange), namely PETKM, HEKTS, SASA, and TUPRS. The distribution of these stocks in the portfolio was determined using Monte Carlo simulation. The study utilized the Parametric VaR method to calculate risk for a 10-day, 3-period timeframe.
To achieve this, daily closing stock price data spanning 5 years from August 24, 2018, to August 24, 2023, was employed. In the comparative analysis, machine learning models, including Random Forest (RF), Support Vector Machine (SVM), Decision Trees (DT), and Linear Regression (LR), were compared. Since the comparison was based on predictions, error metrics such as RMSE, MSE, MAE, and MAPE were used to measure the efficiency of the models.
The analysis revealed that the RF model provided the best results for the prepared portfolio.
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