EconPapers    
Economics at your fingertips  
 

Asset Allocation Using Extreme Value Theory

Younes Bensalah

Staff Working Papers from Bank of Canada

Keywords: Financial; markets (search for similar items in EconPapers)
JEL-codes: C0 C4 C5 G1 (search for similar items in EconPapers)
Pages: 29 pages Abstract: This paper examines asset allocation strategies in an extreme value at risk (VaR) framework in which the risk measure is the p-quantile from the extreme value distribution. The main focus is on the allocation problem faced by an extremely risk-averse institution, such as a central bank. The optimal portfolio in terms of excess return over the risk-free rate per unit of risk is also described. An example of asset allocation is presented using a 1-year treasury bill and a 5-year zero-coupon bond. The allocation is conducted using different risk measures: duration, standard VaR, the quantile of the empirical distribution, and the quantile of the extreme distribution. An approximation procedure is described for the allocation of N-assets. An example of allocating eight Canadian treasuries and bonds is given (covering the whole Canadian term structure). The implications of the results on optimal allocation of capital under stressed market conditions are discussed. Some practical issues concerning the use of the results are described, such as who should allocate capital based on extreme values.
Date: 2002
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2010/02/wp02-2.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:02-2

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2023-01-25
Handle: RePEc:bca:bocawp:02-2