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Extremal Financial Risk Models and Portfolio Evaluation
Year Of Publication: 2006
Month Of Publication: June
Pages: 38
Download Count: 3
View Count: 1062
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 12-18-2012
Publisher: Administrator
Summary
It is difficult to find an existing single model which is able to simultaneously model exceedances over thresholds in multivariate financial time series. A new modeling approach, which is a combination of max-stable processes, GARCH processes, and Markov processes, is proposed which has the flexibility of modeling cross-sectional tail dependencies between risk factors and tail dependencies across time. The new model also models asymmetric behaviors of negative and positive returns on financial assets. An important application of the proposed method is to calculate VaRs (Value at Risk) and evaluate portfolio combinations under VaR constraints. Comparisons between VaRs based on the new approach and VaRs based on variance-covariance approach and historical simulation approach suggest that some existing methods substantially underestimate the risks during recession and expansion time.
This document is published in Computational Statistics and Data Analysis (volume 51) 2006, 2313-2338.
http://dx.doi.org/10.1016/j.csda.2006.09.042
Author(s)
Zhang, Zhengjun Sign in to follow this author
Huang, James Sign in to follow this author
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