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http://dx.doi.org/10.5351/CKSS.2009.16.5.803

Extreme Quantile Estimation of Losses in KRW/USD Exchange Rate  

Yun, Seok-Hoon (Department of Applied Statistics, University of Suwon)
Publication Information
Communications for Statistical Applications and Methods / v.16, no.5, 2009 , pp. 803-812 More about this Journal
Abstract
The application of extreme value theory to financial data is a fairly recent innovation. The classical annual maximum method is to fit the generalized extreme value distribution to the annual maxima of a data series. An alterative modern method, the so-called threshold method, is to fit the generalized Pareto distribution to the excesses over a high threshold from the data series. A more substantial variant is to take the point-process viewpoint of high-level exceedances. That is, the exceedance times and excess values of a high threshold are viewed as a two-dimensional point process whose limiting form is a non-homogeneous Poisson process. In this paper, we apply the two-dimensional non-homogeneous Poisson process model to daily losses, daily negative log-returns, in the data series of KBW/USD exchange rate, collected from January 4th, 1982 until December 31 st, 2008. The main question is how to estimate extreme quantiles of losses such as the 10-year or 50-year return level.
Keywords
Extreme value theory; two-dimensional point process; extreme quantile estimation; exchange rate;
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