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Tail-Risk Indicators with Time-Variant Volatility Models: the case of the Chilean Peso

Author

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  • Rodrigo Alfaro
  • Catalina Estefó

Abstract

In this paper we propose a framework for building tail-risk indicators for the Chilean Peso (CLP) based on time-variant volatility models [e.g., Engle (1982), Taylor (1982), Nelson (1991), Heston and Nandi (2000)], which we estimate by combining: (i) daily returns, (ii) option-implied volatility (IV), and (iii) intraday realized volatility (RV). Our empirical results show that the in-sample fit of the models improves when volatility measures (IV or RV) are added. We provide an application of the framework to evaluate extreme scenarios.

Suggested Citation

  • Rodrigo Alfaro & Catalina Estefó, 2025. "Tail-Risk Indicators with Time-Variant Volatility Models: the case of the Chilean Peso," Working Papers Central Bank of Chile 1041, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:1041
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    References listed on IDEAS

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