Assessing Drawdown-at-Risk in Brazilian Real Foreign Exchange Rates

Vinicius Brandi (vinicius.brandi@gmail.com) and Beatriz Vaz de Melo Mendes (beatriz@im.ufrj.br)
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Beatriz Vaz de Melo Mendes: Instituto de Matemática, Universidade Federal do Rio de Janeiro

Brazilian Review of Finance, 2004, vol. 2, issue 2, 207-223

Abstract: The investigation of the stochastic behavior of financial series has become widespread over the literature. There is empirical and theoretical evidence that the total stock price change over a long period is usually concentrated in the a few hectic runs of trading days. The drawdown is a random variable which provides information on alternative characteristics of market behavior during these periods. In this work, we use distributions from extreme value theory to model the severity of drawdowns and drawups. We illustrate using nine currency exchange rates and gold.

Keywords: foreign exchange risk; drawdowns; drawdown-at-risk (search for similar items in EconPapers)
JEL-codes: C52 G10 G15 (search for similar items in EconPapers)
Date: 2004
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