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A Comparison of EVT and Standard VaR Estimations

Author

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  • Jaroslav Baran

    ()

  • Jiří Witzany

    ()

Abstract

In this paper, Extreme value theory (EVT) is applied in estimating low quantiles of P/L distribution and the results are compared to common VaR methodologies. The fundamental theory behind EVT is built, and peaks-over-threshold method is used for modeling the tail of the distribution of losses with Generalized Pareto Distribution (GPD). Practical issues such as time varying volatility of returns, and multivariate time series (portfolio of financial instruments) are covered.

Suggested Citation

  • Jaroslav Baran & Jiří Witzany, 2012. "A Comparison of EVT and Standard VaR Estimations," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 19(29).
  • Handle: RePEc:czx:journl:v:19:y:2012:i:29:id:185
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    File URL: http://ces.utia.cas.cz/bulletin/index.php/bulletin/article/view/185
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    Cited by:

    1. Kittiya Chaithep & Songsak Sriboonchitta & Chukiat Chaiboonsri & Pathairat Pastpipatkul, 2012. "Value at Risk Analysis of Gold Price Returns Using Extreme Value Theory," The Empirical Econometrics and Quantitative Economics Letters, Faculty of Economics, Chiang Mai University, vol. 1(4), pages 151-168, December.

    More about this item

    Keywords

    Risk measures; Value-at-Risk; Extreme Value Theory; GARCH estimations;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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