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MODELLING TAIL BEHAVIOR OF RETURNS USING THE GENERALIZED EXTREME VALUE DISTRIBUTION

MODELLING TAIL BEHAVIOR OF RETURNS USING THE GENERALIZED EXTREME VALUE DISTRIBUTION Modelling tail behavior of rare and extreme events is an important issue in the risk management of a financial portfolio. Extreme Value Theory (EVT) provides the essentials needed for the statistical modeling of such events and the computation of extreme risk measures. The modeling of extreme daily share returns at the Johannesburg Stock Exchange (JSE) over the period 2002 to 2011 is discussed in this paper. Stock returns at the JSE market are highly volatile and non-normal. Parameters of the Generalized Extreme Value (GEV) distribution are estimated by Maximum Likelihood Estimation (MLE). Empirical results show that the Weibull distribution can be used to model stock returns on the JSE. JEL Codes: D81; G32 Keywords: GEV distribution; MLE; Tail quantiles; Return level http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics, Management, and Financial Markets Addleton Academic Publishers

MODELLING TAIL BEHAVIOR OF RETURNS USING THE GENERALIZED EXTREME VALUE DISTRIBUTION

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Publisher
Addleton Academic Publishers
Copyright
© 2009 Addleton Academic Publishers
ISSN
1842-3191
eISSN
1938-212X
Publisher site
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Abstract

Modelling tail behavior of rare and extreme events is an important issue in the risk management of a financial portfolio. Extreme Value Theory (EVT) provides the essentials needed for the statistical modeling of such events and the computation of extreme risk measures. The modeling of extreme daily share returns at the Johannesburg Stock Exchange (JSE) over the period 2002 to 2011 is discussed in this paper. Stock returns at the JSE market are highly volatile and non-normal. Parameters of the Generalized Extreme Value (GEV) distribution are estimated by Maximum Likelihood Estimation (MLE). Empirical results show that the Weibull distribution can be used to model stock returns on the JSE. JEL Codes: D81; G32 Keywords: GEV distribution; MLE; Tail quantiles; Return level

Journal

Economics, Management, and Financial Markets – Addleton Academic Publishers

Published: Jan 1, 2014

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