Measuring Tail Thickness under GARCH and an Application to Extreme Exchange Rate Changes
Accurate modeling of extreme price changes is vital to financial risk management. We examine the small sample properties of adaptive tail index estimators under the class of student-t marginal distribution functions including GARCH and propose a model-based bias-corrected estimation approach. Our simulation results indicate that bias strongly relates to the underlying model and may be positively as well as negatively signed. The empirical study of daily exchange rate changes reveals substantial differences in measured tail-thickness due to small sample bias. As a consequence, high quantile estimation may lead to a substantial underestimation of tail risk.
|Date of creation:||30 Jan 2004|
|Date of revision:|
|Note:||Type of Document - pdf; prepared on win00; to print on laserjet; pages: 40|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpem:0401008. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.