Distribution of extreme changes in Asian currencies: tail index estimates and value-at-risk calculations

Raj Aggarwal () and Min Qi

Applied Financial Economics, 2009, vol. 19, issue 13, pages 1083-1102

Abstract: This study examines the distribution of extreme values in daily currency changes for nine Asian countries. Using an improved estimator, extreme changes in Asian currencies can generally be represented by Frechet distributions. Our results are robust to the choice of the numeraire currency, the Asian crises and the 1985 Plaza Agreement. These results are important as asset and derivative pricing models, and Value-at-Risk (VaR) calculations depend on accurate assessments of the distribution of extreme values. Indeed, VaRs based on our fitted extreme distributions are similar to VaRs based on historical distributions but are multiples of those based on normal distributions.

Date: 2009

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