Asymmetric Exceedance-Time Model: An Optimal Threshold Approach Based on Extreme Value Theory

12 Pages Posted: 9 Aug 2017 Last revised: 7 Oct 2017

See all articles by Konstantinos Gkillas

Konstantinos Gkillas

University of Patras - Business Administration

François Longin

ESSEC Business School

Athanasios Tsagkanos

University of Patras - Business Administration

Date Written: May 1, 2017

Abstract

We propose an innovative asymmetric exceedance-time model with optimal thresholds. This model examines the impact of extreme downside and upside shocks and determines how the duration between past and present extreme shocks affects the dependent variable. We use extreme value theory (peak-over-threshold method) to model extremes, proposing a procedure for the automatic computation of optimal thresholds, at the point where the fitting of the extreme value distribution is maximized. We apply our model to S&P 500 equity index and GBP/USD exchange rate data and show that a strong statistical relation coincides with optimal threshold levels.

Keywords: Asymmetric Exceedance-Time Model, Extreme Value Theory, Temporal Variability of Extremes

JEL Classification: C41, C58, G01

Suggested Citation

Gkillas, Konstantinos and Longin, François and Tsagkanos, Athanasios, Asymmetric Exceedance-Time Model: An Optimal Threshold Approach Based on Extreme Value Theory (May 1, 2017). Available at SSRN: https://ssrn.com/abstract=3016145 or http://dx.doi.org/10.2139/ssrn.3016145

Konstantinos Gkillas (Contact Author)

University of Patras - Business Administration ( email )

Patras
Greece

HOME PAGE: http://www.gillas.gr

François Longin

ESSEC Business School ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France

HOME PAGE: http://www.essec.edu/faculty/francois-longin

Athanasios Tsagkanos

University of Patras - Business Administration ( email )

Patras
Greece

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