Improving Modeling of Extreme Events using Generalized Extreme Value Distribution or Generalized Pareto Distribution with Mixing Unconditional Disturbances
AbstractIn this paper an alternative non-parametric historical simulation approach, the Mixing Unconditional Disturbances model with constant volatility, where price paths are generated by reshuffling disturbances for S&P 500 Index returns over the period 1950 - 1998, is used to estimate a Generalized Extreme Value Distribution and a Generalized Pareto Distribution. An ordinary back-testing for period 1999 - 2008 was made to verify this technique, providing higher accuracy returns level under upper bound of the confidence interval for the Block Maxima and the Peak-Over Threshold approaches with Mixing Unconditional Disturbances. This method can be an effective tool to create value for stress-testing valuation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 17443.
Date of creation: Sep 2001
Date of revision:
Extreme Value; Block Maxima; Peak Over Threshold; Mixing Unconditional Disturbances;
Find related papers by JEL classification:
- C0 - Mathematical and Quantitative Methods - - General
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Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania
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