ESTIMATION OF VALUE AT RISK FOR GENERAL INSURANCE COMPANY STOCKS USING THE GARCH MODEL

  • Edwin Setiawan Nugraha Study Program of Actuarial Science, School of Business, President University, Indonesia https://orcid.org/0000-0002-3043-0031
  • Agna Olivia Study Program of Actuarial Science, School of Business, President University, Indonesia https://orcid.org/0009-0002-0561-6042
  • Fauziah Nur Fahirah Sudding Study Program of Actuarial Science, School of Business, President University, Indonesia https://orcid.org/0009-0001-3827-6091
  • Karunia Eka Lestari Department of Mathematics Education, Faculty of Teacher Training and Education, Universitas Singaperbangsa Karawang, Indonesia https://orcid.org/0000-0003-1555-5933
DOI: https://doi.org/10.30598/barekengvol19iss2pp1071-1082
Keywords: ARIMA-GARCH, Backtesting, Investment, General Insurance Company, Value at Risk (VaR)

Abstract

Investment plays a crucial role in supporting economic development by allocating funds to generate future profits. Among various investment options, stock investment is widely popular. However, investors face the challenge of developing strategies to maximize returns while minimizing risks. Effective investment requires understanding the potential maximum risk of loss, known as Value at Risk (VaR). This research focuses on estimating VaR for four top general insurance companies in Indonesia: PT Lippo General Insurance Tbk (LPGI), PT Asuransi Tugu Pratama Indonesia Tbk (TUGU), PT Victoria Insurance Tbk (VINS), and PT Asuransi Dayin Mitra Tbk (ASDM). These companies were selected due to their leading positions in the industry. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model, an extension of the ARIMA method designed to handle volatility clustering, is utilized for VaR estimation. Results at confidence levels of 90%, 95%, and 99% reveal that VINS carries the highest risk, with a maximum VaR of IDR 2,848,710 at 99% confidence, while LPGI shows the lowest risk, with a maximum VaR of IDR 22,677. For TUGU, the maximum possible loss is IDR 517,589, and for ASDM, it is IDR 1,532,267. Backtesting confirms the reliability of the models, with some accepted at specific significance levels. Based on this analysis, the results can help investors make investment decisions that minimize potential losses, specifically in the four stocks analyzed.

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Published
2025-04-01
How to Cite
[1]
E. S. Nugraha, A. Olivia, F. N. F. Sudding, and K. E. Lestari, “ESTIMATION OF VALUE AT RISK FOR GENERAL INSURANCE COMPANY STOCKS USING THE GARCH MODEL”, BAREKENG: J. Math. & App., vol. 19, no. 2, pp. 1071-1082, Apr. 2025.
Issue
Vol 19 No 2 (2025): BAREKENG: Journal of Mathematics and Its Application
Section
Articles

Copyright (c) 2025 Edwin Setiawan Nugraha, Agna Olivia, Fauziah Nur Fahirah Sudding, Karunia Eka Lestari

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