Extreme Events in Finance
John Wiley & Sons Inc (Verlag)
978-1-118-65019-6 (ISBN)
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Presenting a uniquely accessible guide, Extreme Events in Finance: A Handbook of Extreme Value Theory and Its Applications features a combination of the theory, methods, and applications of extreme value theory (EVT) in finance and a practical understanding of market behavior including both ordinary and extraordinary conditions.
Beginning with a fascinating history of EVTs and financial modeling, the handbook introduces the historical implications that resulted in the applications and then clearly examines the fundamental results of EVT in finance. After dealing with these theoretical results, the handbook focuses on the EVT methods critical for data analysis. Finally, the handbook features the practical applications and techniques and how these can be implemented in financial markets. Extreme Events in Finance: A Handbook of Extreme Value Theory and Its Applications includes:
Over 40 contributions from international experts in the areas of finance, statistics, economics, business, insurance, and risk management
Topical discussions on univariate and multivariate case extremes as well as regulation in financial markets
Extensive references in order to provide readers with resources for further study
Discussions on using R packages to compute the value of risk and related quantities
The book is a valuable reference for practitioners in financial markets such as financial institutions, investment funds, and corporate treasuries, financial engineers, quantitative analysts, regulators, risk managers, large-scale consultancy groups, and insurers. Extreme Events in Finance: A Handbook of Extreme Value Theory and Its Applications is also a useful textbook for postgraduate courses on the methodology of EVTs in finance.
François Longin, PhD, is Professor in the Department of Finance at ESSEC Business School, France. He has been working on the applications of extreme value theory to financial markets for many years, and his research has been applied by financial institutions in the risk management area including market, credit, and operational risks. His research works can be found in scientific journals such as The Journal of Finance. Dr. Longin is currently a financial consultant with expertise covering risk management for financial institutions and portfolio management for asset management firms.
About the Editor xiii
About the Contributors xv
1 Introduction 1
François Longin
1.1 Extremes 1
1.2 History 2
1.3 Extreme value theory 2
1.4 Statistical estimation of extremes 2
1.5 Applications in finance 4
1.6 Practitioners’ points of view 6
1.7 A broader view on modeling extremes 6
1.8 Final words 7
1.9 Thank you note 7
References 8
2 Extremes Under Dependence—Historical Development and Parallels with Central Limit Theory 11
M.R. Leadbetter
2.1 Introduction 11
2.2 Classical (I.I.D.) central limit and extreme value theories 12
2.3 Exceedances of levels, kth largest values 14
2.4 CLT and EVT for stationary sequences, bernstein’s blocks, and strong mixing 15
2.5 Weak distributional mixing for EVT, D(un), extremal index 18
2.6 Point process of level exceedances 19
2.7 Continuous parameter extremes 20
References 22
3 The Extreme Value Problem in Finance: Comparing the Pragmatic Program with the Mandelbrot Program 25
Christian Walter
3.1 The extreme value puzzle in financial modeling 25
3.2 The sato classification and the two programs 28
3.3 Mandelbrot’s program: A fractal approach 34
3.4 The Pragmatic Program: A data-driven approach 39
3.5 Conclusion 47
Acknowledgments 48
References 48
4 Extreme Value Theory: An Introductory Overview 53
Isabel Fraga Alves and Cláudia Neves
4.1 Introduction 53
4.2 Univariate case 56
4.3 Multivariate case: Some highlights 84
Further reading 90
Acknowledgments 90
References 90
5 Estimation of the Extreme Value Index 97
Beirlant J., Herrmann K., and Teugels J.L.
5.1 Introduction 97
5.2 The main limit theorem behind extreme value theory 98
5.3 Characterizations of the max-domains of attraction and extreme value index estimators 99
5.4 Consistency and asymptotic normality of the estimators 103
5.5 Second-order reduced-bias estimation 104
5.6 Case study 106
5.7 Other topics and comments 108
References 111
6 Bootstrap Methods in Statistics of Extremes 117
M. Ivette Gomes, Frederico Caeiro, Lígia Henriques-Rodrigues, and B.G. Manjunath
6.1 Introduction 117
6.2 A few details on EVT 119
6.3 The bootstrap methodology in statistics of univariate extremes 127
6.4 Applications to simulated data 133
6.5 Concluding remarks 133
Acknowledgments 135
References 135
7 Extreme Values Statistics for Markov Chains with Applications to Finance and Insurance 139
Patrice Bertail, Stéphan Clémençon, and Charles Tillier
7.1 Introduction 139
7.2 On the (pseudo) regenerative approach for markovian data 141
7.3 Preliminary results 151
7.4 Regeneration-based statistical methods for extremal events 154
7.5 The extremal index 156
7.6 The regeneration-based hill estimator 159
7.7 Applications to ruin theory and financial time series 161
7.8 An application to the CAC40 165
7.9 Conclusion 167
References 167
8 Lévy Processes and Extreme Value Theory 171
Olivier Le Courtois and Christian Walter
8.1 Introduction 171
8.2 Extreme value theory 173
8.3 Infinite divisibility and Lévy processes 178
8.4 Heavy-tailed Lévy processes 182
8.5 Semi-heavy-tailed Lévy processes 184
8.6 Lévy processes and extreme values 187
8.7 Conclusion 192
References 192
9 Statistics of Extremes: Challenges and Opportunities 195
M. de Carvalho
9.1 Introduction 195
9.2 Statistics of bivariate extremes 196
9.3 Models based on families of tilted measures 204
9.4 Miscellanea 209
References 211
10 Measures of Financial Risk 215
S.Y. Novak
10.1 Introduction 215
10.2 Traditional measures of risk 215
10.3 Risk estimation 218
10.4 “Technical analysis” of financial data 222
10.5 Dynamic risk measurement 226
10.6 Open problems and further research 234
10.7 Conclusion 235
Acknowledgment 235
References 235
11 On the Estimation of the Distribution of Aggregated Heavy-Tailed Risks: Application to Risk Measures 239
Marie Kratz
11.1 Introduction 239
11.2 A brief review of existing methods 245
11.3 New approaches: Mixed limit theorems 247
11.4 Application to risk measures and comparison 269
11.5 Conclusion 277
References 279
12 Estimation Methods for Value at Risk 283
Saralees Nadarajah and Stephen Chan
12.1 Introduction 283
12.2 General properties 289
12.3 Parametric methods 300
12.4 Nonparametric methods 326
12.5 Semiparametric methods 332
12.6 Computer software 344
12.7 Conclusions 347
Acknowledgment 347
References 347
13 Comparing Tail Risk and Systemic Risk Profiles for Different Types of U.S. Financial Institutions 357
Stefan Straetmans and Thanh Thi Huyen Dinh
13.1 Introduction 357
13.2 Tail risk and systemic risk indicators 361
13.3 Tail risk and systemic risk estimation 364
13.4 Empirical results 368
13.5 Conclusions 381
References 382
14 Extreme Value Theory and Credit Spreads 391
Wesley Phoa
14.1 Preliminaries 391
14.2 Tail behavior of credit markets 394
14.3 Some multivariate analysis 398
14.4 Approximating value at risk for credit portfolios 401
14.5 Other directions 403
References 404
15 Extreme Value Theory and Risk Management in Electricity Markets 405
Kam Fong Chan and Philip Gray
15.1 Introduction 405
15.2 Prior literature 407
15.3 Specification of VaR estimation approaches 409
15.4 Empirical analysis 413
15.5 Conclusion 422
Acknowledgment 423
References 423
16 Margin Setting and Extreme Value Theory 427
John Cotter and Kevin Dowd
16.1 Introduction 427
16.2 Margin setting 428
16.3 Theory and methods 430
16.4 Empirical results 434
16.5 Conclusions 439
Acknowledgment 440
References 440
17 The Sortino Ratio and Extreme Value Theory: An Application to Asset Allocation 443
G. Geoffrey Booth and John Paul Broussard
17.1 Introduction 443
17.2 Data definitions and description 446
17.3 Performance ratios and their estimations 451
17.4 Performance measurement results and implications 456
17.5 Concluding remarks 460
Acknowledgments 461
References 461
18 Portfolio Insurance: The Extreme Value Approach Applied to the CPPI Method 465
Philippe Bertrand and Jean-Luc Prigent
18.1 Introduction 465
18.2 The CPPI method 467
18.3 CPPI and quantile hedging 472
18.4 Conclusion 481
References 481
19 The Choice of the Distribution of Asset Returns: How Extreme Value Can Help? 483
François Longin
19.1 Introduction 483
19.2 Extreme value theory 485
19.3 Estimation of the tail index 488
19.4 Application of extreme value theory to discriminate among distributions of returns 490
19.5 Empirical results 493
19.6 Conclusion 501
References 501
20 Protecting Assets Under Non-Parametric Market Conditions 507
Jean-Marie Choffray and Charles Pahud de Mortanges
20.1 Investors’ “known knowns” 509
20.2 Investors’ “known unknowns” 512
20.3 Investors’ “unknown knowns” 515
20.4 Investors’ “unknown unknowns” 518
20.5 Synthesis 522
References 523
21 EVT Seen by a Vet: A Practitioner’s Experience on Extreme Value Theory 525
Jean-François Boulier
21.1 What has the vet done? 525
21.2 Why use EVT? 526
21.3 What EVT could additionally bring to the party? 528
21.4 A final thought 528
References 528
22 The Robotization of Financial Activities: A Cybernetic Perspective 529
Hubert Rodarie
22.1 An increasingly complex system 530
22.2 Human error 532
22.3 Concretely, what do we need to do to transform a company into a machine? 534
References 543
23 Two Tales of Liquidity Stress 545
Jacques Ninet
23.1 The french money market fund industry. How history has shaped a potentially vulnerable framework 546
23.2 The 1992–1995 forex crisis 547
23.3 Four mutations paving the way for another meltdown 549
23.4 The subprime crisis spillover. How some MMFs were forced to lock and some others not 551
23.5 Conclusion. What lessons can be drawn from these two tales? 552
Further Readings 553
24 Managing Operational Risk in the Banking Business – An Internal Auditor Point of View 555
Maxime Laot
Further Reading 559
References 560
Annexes 560
25 Credo Ut Intelligam 563
Henri Bourguinat and Eric Briys
25.1 Introduction 563
25.2 “Anselmist” finance 563
25.3 Casino or dance hall? 565
25.4 Simple-minded diversification 566
25.5 Homo sapiens versus homo economicus 568
Acknowledgement 569
References 569
26 Bounded Rationalities, Routines, and Practical as well as Theoretical Blindness: On the Discrepancy Between Markets and Corporations 571
Laurent Bibard
26.1 Introduction: Expecting the unexpected 571
26.2 Markets and corporations: A structural and self-disruptive divergence of interests 572
26.3 Making a step back from a dream: On people expectations 574
26.4 How to disentangle people from a unilateral short-term orientation? 578
References 580
Name Index 583
Subject Index 593
| Erscheinungsdatum | 22.11.2016 |
|---|---|
| Reihe/Serie | Wiley Handbooks in Financial Engineering and Econometrics |
| Verlagsort | New York |
| Sprache | englisch |
| Maße | 165 x 236 mm |
| Gewicht | 998 g |
| Themenwelt | Mathematik / Informatik ► Mathematik ► Wahrscheinlichkeit / Kombinatorik |
| Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung | |
| Wirtschaft ► Volkswirtschaftslehre ► Ökonometrie | |
| ISBN-10 | 1-118-65019-0 / 1118650190 |
| ISBN-13 | 978-1-118-65019-6 / 9781118650196 |
| Zustand | Neuware |
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