Generalized Pareto Processes and Liquidity

26 Pages Posted: 24 Feb 2017

See all articles by Sascha Desmettre

Sascha Desmettre

Johannes Kepler University Linz

Johan de Kock

Sanlam - Client Solutions and Research

Peter Ruckdeschel

University of Oldenburg - School of Mathematics and Science

Frank Thomas Seifried

University of Trier

Date Written: February 22, 2017

Abstract

Motivated by the modeling of liquidity risk in fund management in a dynamic setting, we propose and investigate a class of time series models with generalized Pareto marginals: the autoregressive generalized Pareto process (ARGP), a modified ARGP (MARGP) and a thresholded ARGP (TARGP). These models are able to capture key data features apparent in fund liquidity data and reflect the underlying phenomena via easily interpreted, low-dimensional model parameters. We establish stationarity and ergodicity, provide a link to the class of shot-noise processes, and determine the associated interarrival distributions for exceedances. Moreover, we provide estimators for all relevant model parameters and establish consistency and asymptotic normality for all estimators (except the threshold parameter, which as usual must be dealt with separately). Finally, we illustrate our approach using real-world fund redemption data, and we discuss the goodness-of-fit of the estimated models.

Keywords: ARGP process, GPD, liquidity risk, data features

JEL Classification: C10, G31

Suggested Citation

Desmettre, Sascha and de Kock, Johan and Ruckdeschel, Peter and Seifried, Frank Thomas, Generalized Pareto Processes and Liquidity (February 22, 2017). Available at SSRN: https://ssrn.com/abstract=2922085 or http://dx.doi.org/10.2139/ssrn.2922085

Sascha Desmettre (Contact Author)

Johannes Kepler University Linz ( email )

Altenbergerstr. 69
A-4040 Linz, Upper Austria 4040
Austria

HOME PAGE: http://shorturl.at/dwX47

Johan De Kock

Sanlam - Client Solutions and Research ( email )

Willie van Schoor-Weg 55
Bellville, 7530
South Africa

Peter Ruckdeschel

University of Oldenburg - School of Mathematics and Science ( email )

PO box 2503
Oldenburg, 26111
Germany

Frank Thomas Seifried

University of Trier ( email )

Department IV - Mathematics
Universitätsring 19
Trier, 54296
Germany

HOME PAGE: http://sites.google.com/site/seifriedfinance/

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