Open AccessComparison of Block Maxima and Peaks Over Threshold Value-at-Risk models for market risk in various economic conditions
Author(s) -
Filip Szubzda,
Marcin Chlebuś
Publication year - 2019
Publication title -
central european economic journal
Language(s) - English
Resource type - Journals
eISSN - 2544-9001
pISSN - 2543-6821
DOI - 10.2478/ceej-2019-0005
Subject(s) - czech , maxima , closing (real estate) , sample (material) , economics , value (mathematics) , mathematics , statistics , finance , philosophy , linguistics , chemistry , chromatography , performance art , art history , art
The aim of the presented study was to assess the quality of VaR forecasts in various states of the economic situation. Two approaches based on the extreme value theory were compared: Block Maxima and the Peaks Over Threshold. Forecasts were made on the daily closing prices of 10 major indices in European countries, divided into two groups: emerging countries (Bulgaria, Czech Republic, Lithuania, Latvia, Poland, Slovakia and Hungary) and developed countries (England, France and Germany). Three states of economic situation were analysed: the pre-crisis (2007), the crisis (2008) and the post-crisis (2009) period as out-of-sample. The main conclusion obtained is the too slow process of adapting static EVT-based forecasts to market movements. While in the pre-crisis period the results were satisfactory, in the period of crisis VaR forecasts were too often exceeded.