Managing Extreme Risks in Tranquil and Volatile Markets Using Conditional Extreme Value Theory
AbstractFinancial risk management typically deals with low probability events in the tails of asset price distributions. In order to capture the behavior of these tails, one should therefore rely on models that explicitly focus on the tails. Extreme value theory (EVT) based models do exactly that, and in this paper we apply both unconditional and conditional EVT models to the management of extreme market risks in stock markets. We find conditional EVT models to give particularly accurate Value-at-Risk measures, and a comparison with traditional (GARCH) approaches to calculate Value-at-Risk demonstrates EVT as being the superior approach both for standard and more extreme Value-at-Risk quantiles.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2001:18.
Length: 23 pages
Date of creation: 15 Oct 2001
Date of revision:
Publication status: Published in International Review of Financial Analysis, 2004, pages 133-152.
Contact details of provider:
Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
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More information through EDIRC
Value-at-Risk; conditional extreme value theory; GARCH; backtesting;
Other versions of this item:
- Bystrom, Hans N. E., 2004. "Managing extreme risks in tranquil and volatile markets using conditional extreme value theory," International Review of Financial Analysis, Elsevier, vol. 13(2), pages 133-152.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- G19 - Financial Economics - - General Financial Markets - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-10-22 (All new papers)
- NEP-ECM-2001-10-22 (Econometrics)
- NEP-FMK-2001-10-22 (Financial Markets)
- NEP-IAS-2001-10-22 (Insurance Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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