[R-SIG-Finance] Fw: Value-at-Risk

Brian G. Peterson brian at braverock.com
Wed Jul 1 20:43:22 CEST 2009

Debashis Dutta wrote:
> Dear Wei-han,
> I believe EVT based VaR would provide a better solution specially
> in stressed situation like the present one, modeling the extremal behaviour
> in the tail. I used Peaks Over Threshold (POT) based VaR method in my
> doctoral dissertation.
> Back testing and comparing the new method to existing ones on real financial
> events show that this POT based VaR method provides a rather realistic model
> for the extremal behavior of financial processes, enabling a precise
> estimation of risk measures. Through the GPD , the model provides a way of
> estimating the tail behaviour of the random variables without knowledge of
> the true distribution and as such it is a good candidate for Vale at Risk
> computation.
> Most common at this moment is the tail-fitting approach based on the second
> theorem in extreme value theory (Theorem II Pickands(1975), Balkema and de
> Haan(1974)). In general this conforms to the first theorem in extreme value
> theory (Theorem I Fisher and Tippett(1928), and Gnedenko (1943)).The
> difference between the two theorems is due to the nature of the data
> generation.
>  For theorem I the data are generated in full range, while in theorem II
> data is only generated when it surpasses a certain threshold (POT's models
> or Peak Over Threshold). The POT approach has been developed largely in the
> insurance business, where only losses (pay outs) above a certain threshold
> are accessible to the insurance company.

Could you please post a link to your dissertation and the code used to implement it?


  - Brian 

Brian G. Peterson
Ph: 773-459-4973
IM: bgpbraverock

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