Application of Extreme Value Theory to Estimate Tail Thickness for Asset Return Distributions

Michele Leonardo Bianchi, Stoyan V Stoyanov, Gian Luca Tassinari, Frank Fabozzi () and Sergio M Focardi

Chapter 12 in Handbook of Heavy-Tailed Distributions in Asset Management and Risk Management, 2019, pp 517-547 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The main topics covered in this chapter are:assessment of value-at-risk (VaR) and average value-at-risk (AVaR) through extreme value theory (EVT) using the peaks-over-threshold method;how to combine the standard GARCH model which takes into account the clustering of volatility with EVT for risk estimation;extensive in-sample and out-of-sample analysis of the upper and the lower tail thickness of the return distributions of market indices;AVaR-based and standard VaR-based statistical tests to assess the out-of-sample behavior of the risk model.

Keywords: Heavy Tail Distributions; Fat Tail Distributions; Lévy Processes; Tempered Stable Distributions; Multivariate Time-changed Brownian Motion; Extreme Value Theory; Risk Management (search for similar items in EconPapers)
JEL-codes: C02 G32 (search for similar items in EconPapers)
Date: 2019
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