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Application of Extreme Value Theory to Estimate Tail Thickness for Asset Return Distributions

In: HANDBOOK OF HEAVY-TAILED DISTRIBUTIONS IN ASSET MANAGEMENT AND RISK MANAGEMENT

Author

Listed:
  • Michele Leonardo Bianchi
  • Stoyan V Stoyanov
  • Gian Luca Tassinari
  • Frank J Fabozzi
  • Sergio M Focardi

Abstract

The main topics covered in this chapter are:assessment of value-at-risk (VaR) and average value-at-risk (AVaR) through extreme value theory (EVT) using the peaks-over-threshold method;how to combine the standard GARCH model which takes into account the clustering of volatility with EVT for risk estimation;extensive in-sample and out-of-sample analysis of the upper and the lower tail thickness of the return distributions of market indices;AVaR-based and standard VaR-based statistical tests to assess the out-of-sample behavior of the risk model.

Suggested Citation

  • Michele Leonardo Bianchi & Stoyan V Stoyanov & Gian Luca Tassinari & Frank J Fabozzi & Sergio M Focardi, 2019. "Application of Extreme Value Theory to Estimate Tail Thickness for Asset Return Distributions," World Scientific Book Chapters, in: HANDBOOK OF HEAVY-TAILED DISTRIBUTIONS IN ASSET MANAGEMENT AND RISK MANAGEMENT, chapter 12, pages 517-547, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813276208_0012
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    More about this item

    Keywords

    Heavy Tail Distributions; Fat Tail Distributions; Lévy Processes; Tempered Stable Distributions; Multivariate Time-changed Brownian Motion; Extreme Value Theory; Risk Management;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics

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