USING EXTREME VALUE THEORY TO ESTIMATE VALUE AT RISK (CASE STUDY: FOREIGN EXCHANGE RATE)

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SADEGHI HOJJATOLLAH; BEHBOODI SAEIDEH

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Paper Information

Journal: JOURNAL OF ASSET MANAGEMENT AND FINANCING Year:2016 | Volume:4 | Issue:2 (13) Page(s): 77-94

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Information Journal Paper

Title

USING EXTREME VALUE THEORY TO ESTIMATE VALUE AT RISK (CASE STUDY: FOREIGN EXCHANGE RATE)

Author(s)

SADEGHI HOJJATOLLAH | BEHBOODI SAEIDEH | Issue Writer Certificate

Keywords

VALUE AT RISKQ1

EXTREME VALUE THEORYQ1

MARKET RISK MANAGEMENTQ1

BLOCK MAXIMAQ1

PEAK OVER THRESHOLDQ1

Abstract

This paper examines the EXTREME VALUE THEORY as a useful measure for evaluation of extreme risk events (rare but high impact events). A common practice to calculate VALUE AT RISK (VaR) is based on the assumption that changes in the value of the portfolio are normally distributed. However, assets returns usually come from fat-tailed distributions. Therefore, computing VaR under the assumption of conditional normality can be an important source of error. EXTREME VALUE THEORY does not follow from the central limit theorem in mathematics, and instead is focused on extreme data. Therefore, this study examines the EXTREME VALUE THEORY is a powerful framework for studying tail distributions. USD return and volatility is considered as a case study in this article. The normality assumption was rejected by examining the distribution of logarithmic returns. The results suggest that the application of EVT make better fit than the other models that are based on the assumption of normality.

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APA: Copy

SADEGHI, HOJJATOLLAH, & BEHBOODI, SAEIDEH. (2016). USING EXTREME VALUE THEORY TO ESTIMATE VALUE AT RISK (CASE STUDY: FOREIGN EXCHANGE RATE). JOURNAL OF ASSET MANAGEMENT AND FINANCING, 4(2 (13) ), 77-94. SID. https://sid.ir/paper/245613/en

Vancouver: Copy

SADEGHI HOJJATOLLAH, BEHBOODI SAEIDEH. USING EXTREME VALUE THEORY TO ESTIMATE VALUE AT RISK (CASE STUDY: FOREIGN EXCHANGE RATE). JOURNAL OF ASSET MANAGEMENT AND FINANCING[Internet]. 2016;4(2 (13) ):77-94. Available from: https://sid.ir/paper/245613/en

IEEE: Copy

HOJJATOLLAH SADEGHI, and SAEIDEH BEHBOODI, “USING EXTREME VALUE THEORY TO ESTIMATE VALUE AT RISK (CASE STUDY: FOREIGN EXCHANGE RATE),” JOURNAL OF ASSET MANAGEMENT AND FINANCING, vol. 4, no. 2 (13) , pp. 77–94, 2016, [Online]. Available: https://sid.ir/paper/245613/en

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