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Improving Modeling of Extreme Events using Generalized Extreme Value Distribution or Generalized Pareto Distribution with Mixing Unconditional Disturbances

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Author Info
Suarez, Ronny
Abstract

In 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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17482.

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Date of creation: Sep 2009
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Handle: RePEc:pra:mprapa:17482

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Related research
Keywords: Extreme Values; Block Maxima; Peak-Over Threshold; Mixing Unconditional Disturbances;

Find related papers by JEL classification:
C0 - Mathematical and Quantitative Methods - - General
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General

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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.:
  1. Francis X. Diebold & Til Schuermann & John D. Stroughair, 1998. "Pitfalls and Opportunities in the Use of Extreme Value Theory in Risk Management," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-081, New York University, Leonard N. Stern School of Business-.
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  2. Younes Bensalah, 2000. "Steps in Applying Extreme Value Theory to Finance: A Review," Working Papers 00-20, Bank of Canada. [Downloadable!]
  3. Tompkins, Robert G. & D'Ecclesia, Rita L., 2006. "Unconditional return disturbances: A non-parametric simulation approach," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 287-314, January. [Downloadable!] (restricted)
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This page was last updated on 2009-12-16.

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