Improving Modeling of Extreme Events using Generalized Extreme Value Distribution or Generalized Pareto Distribution with Mixing Unconditional Disturbances

R Suarez

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper an alternative non-parametric historical simulation approach, the Mixing Unconditional Disturbances model with constant volatility, where price paths are generated by reshuffling disturbances for S&P 500 Index returns over the period 1950 - 1998, is used to estimate a Generalized Extreme Value Distribution and a Generalized Pareto Distribution. An ordinary back-testing for period 1999 - 2008 was made to verify this technique, providing higher accuracy returns level under upper bound of the confidence interval for the Block Maxima and the Peak-Over Threshold approaches with Mixing Unconditional Disturbances. This method can be an effective tool to create value for stress-testing valuation.

Keywords: Extreme Value; Block Maxima; Peak Over Threshold; Mixing Unconditional Disturbances (search for similar items in EconPapers)
JEL-codes: C0 (search for similar items in EconPapers)
Date: 2001-09
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:17443

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