The Two-sided Weibull Distribution and Forecasting Financial Tail Risk

Qian Chen and Richard Gerlach

No 01/2011, Working Papers from University of Sydney Business School, Discipline of Business Analytics

Abstract: A two-sided Weibull is developed to model the conditional financial return distribution, for the purpose of forecasting Value at Risk (VaR) and conditional VaR. A range of conditional return distributions are combined with four volatility specifications to forecast tail risk in four international markets, two exchange rates and one individual asset series, over a four year forecast period that includes the recent global financial crisis. The two-sided Weibull performs at least as well as other distributions for VaR forecasting, but performs most favourably for conditional Value at Risk forecasting, prior to as well as during and after the recent crisis.

Keywords: Two-sided Weibull; Value-at-Risk; Expected shortfall; Back-testing; global financial crisis; volatility (search for similar items in EconPapers)
Date: 2011-01
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Persistent link: https://EconPapers.repec.org/RePEc:syb:wpbsba:2123/8163

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