Tail-Risk Indicators with Time-Variant Volatility Models: the case of the Chilean Peso

Rodrigo Alfaro and Catalina Estefó

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: In this paper we propose a framework for building tail-risk indicators for the Chilean Peso (CLP) based on time-variant volatility models [e.g., Engle (1982), Taylor (1982), Nelson (1991), Heston and Nandi (2000)], which we estimate by combining: (i) daily returns, (ii) option-implied volatility (IV), and (iii) intraday realized volatility (RV). Our empirical results show that the in-sample fit of the models improves when volatility measures (IV or RV) are added. We provide an application of the framework to evaluate extreme scenarios.

Date: 2025-04
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:1041

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