Extreme Value at Risk and Expected Shortfall During Financial Crisis

19 Pages Posted: 21 Jan 2011

See all articles by Lancine Kourouma

Lancine Kourouma

affiliation not provided to SSRN

Denis Dupre

University of Grenoble

Gilles Sanfilippo

University of Grenoble

Ollivier Taramasco

University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG)

Date Written: June 20, 2010

Abstract

This paper presents Peak Over Threshold’s method and the generalized Pareto distribution of extreme value theory to measure Value at Risk and Expected Shortfall for CAC 40 and S&P 500 indexes during the 2008 financial crisis. We consider 1 day, 5 days and 10 days time horizons. The results of extreme value theory model are compared with those of traditional historical simulation through backtesting process on 250 days. We show an underestimation of the risk of loss for VaR models. This underestimation is stronger for the historical VaR model than that extreme values theory VaR model. The backtesting process also indicates a certain reliability of the measure of Expected Shorfall based on the extreme value theory. For the studied assets with some of the numerous authorized calculations, the Basell II agreement appears to be a good supervision. In fact, concerning the capital requirement for banks, all measures, even in the deeper of the crisis, lead to a sufficient cushion of capital.

Keywords: Market risk, Value at Risk, Extreme Value Theory, Risk Measurement, Risk Management, Financial Crisis

JEL Classification: G21,G33,G18

Suggested Citation

Kourouma, Lancine and Dupre, Denis and Sanfilippo, Gilles and Taramasco, Ollivier, Extreme Value at Risk and Expected Shortfall During Financial Crisis (June 20, 2010). Available at SSRN: https://ssrn.com/abstract=1744091 or http://dx.doi.org/10.2139/ssrn.1744091

Lancine Kourouma

affiliation not provided to SSRN ( email )

Denis Dupre (Contact Author)

University of Grenoble ( email )

CERAG
150, rue de la Chimie, BP 47
Grenoble, Cedex 9 38040
France

Gilles Sanfilippo

University of Grenoble ( email )

Grenoble
France

Ollivier Taramasco

University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG) ( email )

150 rue de la Chimie, BP47
GRENOBLE CEDEX, 38040
France

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,204
Abstract Views
4,715
Rank
32,243
PlumX Metrics