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Extreme Value at Risk and Expected Shortfall during Financial Crisis

  • L. Kourouma

    ((Axe de recherche : Finance) - CERAG - Centre d'études et de recherches appliquées à la gestion - Grenoble 2 UPMF - Université Pierre Mendès France - CNRS)

  • D. Dupre

    ((Axe de recherche : Finance) - CERAG - Centre d'études et de recherches appliquées à la gestion - Grenoble 2 UPMF - Université Pierre Mendès France - CNRS - IAE Grenoble - Institut d'Administration des Entreprises - Grenoble - Grenoble 2 UPMF - Université Pierre Mendès France)

  • G. Sanfilippo

    ((Axe de recherche : Finance) - CERAG - Centre d'études et de recherches appliquées à la gestion - Grenoble 2 UPMF - Université Pierre Mendès France - CNRS)

  • O. Taramasco

    ((Axe de recherche : Finance) - CERAG - Centre d'études et de recherches appliquées à la gestion - Grenoble 2 UPMF - Université Pierre Mendès France - CNRS)

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    This paper investigates Value at Risk and Expected Shortfall for CAC 40, S&P 500, Wheat and Crude Oil indexes during the 2008 financial crisis. We show an underestimation of the risk of loss for the unconditional VaR models as compared with the conditional models. This underestimation is stronger using the historical VaR approach than when using the extreme values theory VaR model. Even in 2008 financial crisis, the conditional EVT model is more accurate and reliable for predicting the asset risk losses. Banks have no interest in using it because the Basel II agreement penalizes banks using accuracy models like the conditional EVT model, and this is the case for the assets being studied in this paper.

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    Date of creation: 2011
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    Handle: RePEc:hal:journl:halshs-00658495
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00658495
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    1. Jose A. Lopez, 1997. "Regulatory evaluation of value-at-risk models," Staff Reports 33, Federal Reserve Bank of New York.
    2. Basak, Suleyman & Shapiro, Alexander, 2001. "Value-at-Risk-Based Risk Management: Optimal Policies and Asset Prices," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 371-405.
    3. Marimoutou, Velayoudoum & Raggad, Bechir & Trabelsi, Abdelwahed, 2009. "Extreme Value Theory and Value at Risk: Application to oil market," Energy Economics, Elsevier, vol. 31(4), pages 519-530, July.
    4. Gencay, Ramazan & Selcuk, Faruk, 2004. "Extreme value theory and Value-at-Risk: Relative performance in emerging markets," International Journal of Forecasting, Elsevier, vol. 20(2), pages 287-303.
    5. Engle, Robert F & Manganelli, Simone, 1999. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," University of California at San Diego, Economics Working Paper Series qt06m3d6nv, Department of Economics, UC San Diego.
    6. Viviana Fernández, 2003. "Extreme Value Theory and Value at Risk," Documentos de Trabajo 154, Centro de Economía Aplicada, Universidad de Chile.
    7. Longin, Francois M., 2000. "From value at risk to stress testing: The extreme value approach," Journal of Banking & Finance, Elsevier, vol. 24(7), pages 1097-1130, July.
    8. Timotheos Angelidis & Stavros Degiannakis, 2007. "Backtesting VaR Models: An Expected Shortfall Approach," Working Papers 0701, University of Crete, Department of Economics.
    9. McNeil, Alexander J. & Frey, Rudiger, 2000. "Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 271-300, November.
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