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Value-at-Risk and Extreme Returns

Jon Danielsson () and Casper de Vries ()

Annals of Economics and Statistics, 2000, issue 60, 239-270

Abstract: We propose a semi-parametric method for unconditional Value-at-Risk (VaR) evaluation. The largest risks are modelled parametrically, while smaller risks are captured by the non-parametric empirical distribution function. A comparison of methods on a portfolio of stock and option returns reveals that at the 5% level the RiskMetrics analysis is best, but for predictions of low probability worst outcomes, it strongly underpredicts the VaR while the semi-parametric method is the most accurate.

Date: 2000
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