Modelling extreme market risk of polish banks’ debt instruments’ portfolios

• Authors: Marcin Łupiński
• Languages of publication: EN

Abstracts

EN

The main goal of this article is to present extreme market risk evaluation methods which go beyond the standard Value at Risk methodology. Two main approaches: Expected Tail Loss (ETL) and Extreme Value Theory (EVT) are presented and then applied to simulate interest risk stemming from government debt portfolio held by Polish banks. The two methods seem to be very useful to estimate real market risk exposures during the times of distress on the financial markets.

Keywords

EN

market risk; Value at Risk; Expected Tail Loss; Extreme Value Theory

• Publisher: Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu
• Journal: Econometrics. Ekonometria. Advances in Applied Data Analytics
• Year: 2013
• Issue: 3(41)
• Pages: 113-130

Contributors

author

Marcin Łupiński

• University of Warsaw, National Bank of Poland

References

• Allen D.E., Kramadibrata A.R., Powell R.J., Singh A.K. (2011), Tail Risk for Australian Emerging Market Entities, Working papers 2011-07, Edith Cowan University, School of Accounting Finance & Economics 2011.
• BIS, A Glossary of Terms used in Payments and Settlement Systems, 2003.
• Bystroem H., Managing extreme risks in tranquil and volatile markets using conditional extreme value theory, ”International Review of Financial Analysis” 2004, vol. 13(2), pp. 133-152.
• Danielsson J., Finanacial Risk Forecasting, John Wiley & Sons, Chichester 2011.
• Dowd K., Measuring Market Risk, 2nd edition, John Wiley & Sons, Chichester 2005.
• Duffie D., Pan J., An overview of value at risk, “Journal of Derivatives” 1997, vol. 4, pp. 7-49.
• Embrechts P., Kuppelberg C., Mikosch T., Modelling Extremal Events for Insurance and Finance: Application of Mathematics, Springer, New York 1997.
• Gencay R., Selcuk F., Extreme value theory and VaR: Relative performance in emerging markets, “International Journal of Forecasting” 2004, vol. 20, pp. 287-303.
• Gencay R., Selcuk F., Ulugulyagci A., High volatility, thick tails and extreme value theory in value-at-risk estimation, “Insurance: Mathematics & Economics” 2003, 33, pp. 337-356.
• Holton G., Value-at-Risk: Theory and Practice, Academic Press, Amsterdam 2003.
• Hull C.J., Risk Management and Financial Institutions, Pearson Prentice Hall, New York 2007.
• Hull C.J., White A., Incorporating volatility updating into the historical simulation method for Value-at-Risk, “Journal of Risk” 1998, vol. 1(1), pp. 5-19.
• Jajuga K. (ed.), Metody ekonometryczne i statystyczne w analizie rynku kapitałowego, Wydawnictwo Akademii Ekonomicznej we Wrocławiu, Wrocław 2000.
• Jajuga K. (ed.), Zarządzanie ryzykiem, Wydawnictwo Naukowe PWN, Warszawa 2007a.
• Jajuga K., Elementy nauki o finansach, PWE, Warszawa 2007b.
• Jorion P., Value-at-Risk, McGraw-Hill, New York 2006.
• Longin F., The choice of the distribution of asset returns: How extreme value theory can help, “Journal of Banking and Finance” 2005, vol. 29, pp. 1017-1035.
• Mapa D.S., Suaiso O.Q., Measuring market risk using extreme value theory, MPRA Paper No. 21246, 2009.
• McNeil A., Frey R., Estimation of tail-related risk measures for heteroskedastic financial time series: An extreme value approach, “Journal of Empirical Finance” 2000, vol. 7, pp. 271-300.
• Mentel G., Ryzyko rynku akcji, CeDeWu, Warszawa 2012.
• Pritsker M., The hidden dangers of historical simulation, “Journal of Banking and Finance” 2006, vol. 30, pp. 561-582.
• Ze-To S.Y.M., Crisis, Value at Risk and Conditional Extreme Value Theory via the NIG + Jump Model, “Journal of Mathematical Finance” 2012, vol. 2, no. 3, pp. 225-237.