Impact of Returns Time Dependency on the Estimation of Extreme Market Risk

Wafa Snoussi () and Mhamed ali El-aroui ()
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Wafa Snoussi: Hihg institute of management tunisia ISG Tunis
Mhamed ali El-aroui: university of management Nabeul

Economics Bulletin, 2011, vol. 31, issue 4, 3294-3303

Abstract: The estimation of Value-at-Risk generally used models assuming independence. However, financial returns tend to occur in clusters with time dependency. In this paper we study the impact of negligence of returns dependency in market risk assessment. The main methods which take into account returns dependency to assess market risk are: Declustering, Extremal index and Time series-Extreme Value Theory combination. Results shows an important reduction of the estimation error under dependency assumption. For real data, methods which take into account returns dependency have generally the best performances.

Keywords: Value-at-Risk; Market risk; Dependency; Declustering; Extremal index; Time Series-EVT Combination. (search for similar items in EconPapers)
JEL-codes: C1 G1 (search for similar items in EconPapers)
Date: 2011-12-09
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