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From Value at Risk to Stress Testing: The Extreme Value Approach
Company: Journal of Banking and Finance
Year Of Publication: 2000
Month Of Publication: January
Pages: 1097-1130
Download Count: 1495
View Count: 10253
Comment Num: 0
Language: EN
Source: article
Who Can Read: Free
Date: 8-28-2002
Publisher: Administrator
Summary
his paper presents extreme value theory and its application to the computation of the value at risk of a position. This statistical theory allows quantification of the behavior of extreme movements in prices and rates. Empirically, it is shown that the Frechet distribution models this type of movement well. Extreme movements are associated withboth little rremors like market adjustments or corrections during ordinary periods, and also earthquake-like stock market crashes or foreign exchange crises observed furing extraordinary periods. An approach based on extreme values to compute value at risk then reconciles the existing VaR methods which consider usual market conditions, and stress testing methods with focus on crises.
(volume 24)
Author(s)
Longin, Francois M. Sign in to follow this author
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