In this paper, a modification of the factor-ARCH model proposed by Christiansen(1999) is used to calculate VAR of stock portfolios. Data covers seven daily Korean Industrial stock return indices such as construction, distribution, financial institution, chemistry, steel & metal, electricity & electronics, foods & beverages from January 1996 to December 1999. The factors are derived through Principal Component Analysis and are independent one another. The returns of the factors are assumed to be described by the univariate IGARCH(1,1) model. The calculated VAR amounts are compared to those of RiskMetrics estimates using failure rate rule.
