Nonparametric adaptive value-at-risk quantification based on the multiscale energy distribution of asset returns

Georgios Tzagkarakis, Frantz Maurer and Thomas Dionysopoulos
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Georgios Tzagkarakis: IRGO - Institut de Recherche en Gestion des Organisations - UB - Université de Bordeaux - Institut d'Administration des Entreprises (IAE) - Bordeaux
Frantz Maurer: IRGO - Institut de Recherche en Gestion des Organisations - UB - Université de Bordeaux - Institut d'Administration des Entreprises (IAE) - Bordeaux

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Abstract: Quantifying risk is pivotal for every financial institution, with the temporal dimension being the key aspect for all the well-established risk measures. However, exploiting the frequency information conveyed by financial data, could yield improved insights about the inherent risk evolution in a joint time-frequency fashion. Nevertheless, the great majority of risk managers make no explicit distinction between the information captured by patterns of different frequency content, while relying on the full time-resolution data, regardless of the trading horizon. To address this problem, a novel value-at-risk (VaR) quantification method is proposed, which combines nonlinearly the time-evolving energy profile of returns series at multiple frequency scales, determined by the predefined trading horizon. Most importantly, our proposed method can be coupled with any quantile-based risk measure to enhance its performance. Experimental evaluation with real data reveals an increased robustness of our method in efficiently controlling under-/overestimated VaR values.

Keywords: Commerce; Different frequency; Experimental evaluation; Financial institution; Frequency information; Multiple frequency; Multiscale energy; Quantification methods; Risk assessment; Signal processing; Temporal dimensions; Value engineering (search for similar items in EconPapers)
Date: 2021-01-18
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Published in 28th European Signal Processing Conference (EUSIPCO), Jan 2021, Amsterdam, Netherlands. pp.2393-2397, ⟨10.23919/Eusipco47968.2020.9287568⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03728672

DOI: 10.23919/Eusipco47968.2020.9287568

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