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Impact of Returns Time Dependency on the Estimation of Extreme Market Risk

Author

Listed:
  • Wafa Snoussi

    (Hihg institute of management tunisia ISG Tunis)

  • Mhamed ali El-aroui

    (university of management Nabeul)

Abstract

The estimation of Value-at-Risk generally used models assuming independence. However, financial returns tend to occur in clusters with time dependency. In this paper we study the impact of negligence of returns dependency in market risk assessment. The main methods which take into account returns dependency to assess market risk are: Declustering, Extremal index and Time series-Extreme Value Theory combination. Results shows an important reduction of the estimation error under dependency assumption. For real data, methods which take into account returns dependency have generally the best performances.

Suggested Citation

  • Wafa Snoussi & Mhamed ali El-aroui, 2011. "Impact of Returns Time Dependency on the Estimation of Extreme Market Risk," Economics Bulletin, AccessEcon, vol. 31(4), pages 3294-3303.
    • Handle: RePEc:ebl:ecbull:eb-10-00712
    as

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    References listed on IDEAS

    as
    1. 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.
    2. 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.
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    More about this item

    Keywords

    Value-at-Risk; Market risk; Dependency; Declustering; Extremal index; Time Series-EVT Combination.;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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