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Extreme Value at Risk and Expected Shortfall during Financial Crisis

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Author Info

  • L. Kourouma

    (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II)

  • D. Dupre

    (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II, IAE Grenoble - Institut d'Administration des Entreprises - Grenoble - Université Pierre Mendès-France - Grenoble II)

  • G. Sanfilippo

    (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II)

  • O. Taramasco

    (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II)

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    Abstract

    This paper investigates Value at Risk and Expected Shortfall for CAC 40, S&P 500, Wheat and Crude Oil indexes during the 2008 financial crisis. We show an underestimation of the risk of loss for the unconditional VaR models as compared with the conditional models. This underestimation is stronger using the historical VaR approach than when using the extreme values theory VaR model. Even in 2008 financial crisis, the conditional EVT model is more accurate and reliable for predicting the asset risk losses. Banks have no interest in using it because the Basel II agreement penalizes banks using accuracy models like the conditional EVT model, and this is the case for the assets being studied in this paper.

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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number halshs-00658495.

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    Date of creation: 2011
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    Handle: RePEc:hal:journl:halshs-00658495

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00658495/en/
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    Related research

    Keywords: Market risk; Value at Risk; EVT; GARCH; Financial crisis; Basel requirements;

    This paper has been announced in the following NEP Reports:

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    1. McNeil, Alexander J. & Frey, Rudiger, 2000. "Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 271-300, November.
    2. Jose A. Lopez, 1997. "Regulatory evaluation of value-at-risk models," Research Paper 9710, Federal Reserve Bank of New York.
    3. Engle, Robert F & Manganelli, Simone, 1999. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," University of California at San Diego, Economics Working Paper Series qt06m3d6nv, Department of Economics, UC San Diego.
    4. Viviana Fernández, 2003. "Extreme Value Theory and Value at Risk," Documentos de Trabajo 154, Centro de Economía Aplicada, Universidad de Chile.
    5. Suleyman Basak & Alexander Shapiro, 1999. "Value-at-Risk Based Risk Management: Optimal Policies and Asset Prices," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-032, New York University, Leonard N. Stern School of Business-.
    6. Longin, Francois M., 2000. "From value at risk to stress testing: The extreme value approach," Journal of Banking & Finance, Elsevier, vol. 24(7), pages 1097-1130, July.
    7. Gencay, Ramazan & Selcuk, Faruk, 2004. "Extreme value theory and Value-at-Risk: Relative performance in emerging markets," International Journal of Forecasting, Elsevier, vol. 20(2), pages 287-303.
    8. Marimoutou, Velayoudoum & Raggad, Bechir & Trabelsi, Abdelwahed, 2009. "Extreme Value Theory and Value at Risk: Application to oil market," Energy Economics, Elsevier, vol. 31(4), pages 519-530, July.
    9. Timotheos Angelidis & Stavros Degiannakis, 2007. "Backtesting VaR Models: An Expected Shortfall Approach," Working Papers 0701, University of Crete, Department of Economics.
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