Comparison of Block Maxima and Peaks Over Threshold Value-at-Risk models for market risk in various economic conditions

Abstracts

EN

The aim of the presented study was to assess the quality of VaR forecasts in various states of the economic situation. Two approaches based on the extreme value theory were compared: Block Maxima and the Peaks Over Threshold. Forecasts were made on the daily closing prices of 10 major indices in European countries, divided into two groups: emerging countries (Bulgaria, Czech Republic, Lithuania, Latvia, Poland, Slovakia and Hungary) and developed countries (England, France and Germany). Three states of economic situation were analysed: the pre-crisis (2007), the crisis (2008) and the post-crisis (2009) period as out-of-sample. The main conclusion obtained is the too slow process of adapting static EVT-based forecasts to market movements. While in the pre-crisis period the results were satisfactory, in the period of crisis VaR forecasts were too often exceeded.

Keywords

EN

Value-at-Risk; extreme value theory; forecasting; market risk

• Publisher: Uniwersytet Warszawski. Wydawnictwo Naukowe Wydziału Zarządzania
• Journal: Central European Economic Journal
• Year: 2019
• Volume: 6
• Issue: 53

Dates

published

2020-03-20

Contributors

other

Filip Szubzda

• Faculty of Economic Sciences University of Warsaw

other

Marcin Chlebus

• Faculty of Economic Sciences University of Warsaw

Identifiers

DOI

10.2478/ceej-2019-0005