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| Author: | Bali, T.G. |
| Title: | An extreme value approach to estimating volatility and value at risk |
| Journal: | Journal of Business
2003 : JAN, VOL. 76:1, p. 83-108 |
| Index terms: | Interest rates Value-at-risk Volatility USA |
| Language: | eng |
| Abstract: | This article determines the type of asymptotic distribution for the extreme changes in U.S. Treasury yields. The thintailed Gumbel and exponential distributions are strongly rejected against the fat-tailed Frechet and Pareto distributions. The empirical results indicate that the volatility of maximal and minimal changes in interest rates declines as time-to-maturity rises, yielding a downward-sloping volatility curve for the extremes. The article proposes an extreme value approach to estimating value at risk and shows that the statistical theory of extremes provides a more accurate approach for risk management and value at risk (VaR) calculations than the standard models. |
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