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Assessing Drawdown-at-Risk in Brazilian Real Foreign Exchange Rates

Author

Listed:
  • Vinicius Ratton Brandi

    (Banco Centra do Brasil)

  • Beatriz Vaz de Melo Mendes

    (Instituto de Matemática, Universidade Federal do Rio de Janeiro)

Abstract

The investigation of the stochastic behavior of financial series has become widespread over the literature. There is empirical and theoretical evidence that the total stock price change over a long period is usually concentrated in the a few hectic runs of trading days. The drawdown is a random variable which provides information on alternative characteristics of market behavior during these periods. In this work, we use distributions from extreme value theory to model the severity of drawdowns and drawups. We illustrate using nine currency exchange rates and gold.

Suggested Citation

  • Vinicius Ratton Brandi & Beatriz Vaz de Melo Mendes, 2004. "Assessing Drawdown-at-Risk in Brazilian Real Foreign Exchange Rates," Brazilian Review of Finance, Brazilian Society of Finance, vol. 2(2), pages 207-223.
    • Handle: RePEc:brf:journl:v:2:y:2004:i:2:p:207-223
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign exchange risk; drawdowns; drawdown-at-risk;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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