GARCH dependence in extreme value models with Bayesian inference

Xin Zhao, Carl John Scarrott, Les Oxley and Marco Reale

Mathematics and Computers in Simulation (MATCOM), 2011, vol. 81, issue 7, 1430-1440

Abstract: Extreme value methods are widely used in financial applications such as risk analysis, forecasting and pricing models. One of the challenges with their application in finance is accounting for the temporal dependence between the observations, for example the stylised fact that financial time series exhibit volatility clustering. Various approaches have been proposed to capture the dependence. Commonly a two-stage approach is taken, where the volatility dependence is removed using a volatility model like a GARCH (or one of its many incarnations) followed by application of standard extreme value models to the assumed independent residual innovations.

Keywords: Extreme values; Dependence; Bayesian inference; GARCH (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:81:y:2011:i:7:p:1430-1440

DOI: 10.1016/j.matcom.2010.08.002

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