Estimating the Value-at-Risk: A Comparative Study of the Extreme Value Theory and Transformed Kernel Density Approach

Posted: 22 Feb 2012 Last revised: 5 Jun 2013

See all articles by Yi Ling Low

Yi Ling Low

The University of Melbourne

Jonathan Dark

University of Melbourne; Financial Research Network (FIRN)

Date Written: November 10, 2008

Abstract

This paper reports on the results of an extensive simulation study that compares three methods of estimating the value at risk of stock portfolios. Simulating returns from a wide range of data generating processes, we found that the peak-over-threshold (POT) method outperforms the transformed kernel density and the generalized extreme value block-maxima approaches. The POT approach is capable of producing accurate estimates of the tail quantiles, and for most of the cases considered, the observed violation rates are insignificantly different from the estimated quantiles.

Keywords: Extreme Value Theory, Transformed Kernel Density

JEL Classification: C10, C14

Suggested Citation

Low, Yi Ling and Dark, Jonathan, Estimating the Value-at-Risk: A Comparative Study of the Extreme Value Theory and Transformed Kernel Density Approach (November 10, 2008). Available at SSRN: https://ssrn.com/abstract=2009130 or http://dx.doi.org/10.2139/ssrn.2009130

Yi Ling Low (Contact Author)

The University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

HOME PAGE: http://www.finance.unimelb.edu.au/who/PhDWeb.cfm?PhDNo=37

Jonathan Dark

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,199
PlumX Metrics