Predicting extreme VaR: Nonparametric quantile regression with refinements from extreme value theory
This paper studies the performance of nonparametric quantile regression as a tool to predict Value at Risk (VaR). The approach is flexible as it requires no assumptions on the form of return distributions. A monotonized double kernel local linear estimator is applied to estimate moderate (1%) conditional quantiles of index return distributions. For extreme (0.1%) quantiles, where particularly few data points are available, we propose to combine nonparametric quantile regression with extreme value theory. The out-of-sample forecasting performance of our methods turns out to be clearly superior to different specifications of the Conditionally Autoregressive VaR (CAViaR) models.
|Date of creation:||Feb 2010|
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Web page: http://sfb649.wiwi.hu-berlin.de
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