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AN EXTREMES ANALYSIS OF VaRS FOR EMERGING MARKET BENCHMARK BONDS

By Rudiger Kiesel, William Perraudin, Birkbeck College, Bank Of England and Alex Taylor

Abstract

This paper estimates one-day-holding-period VaRs for benchmark emerging market bond returns using recent advances in Extreme Value Theory. We conclude that (i) for con dence levels commonly used in market risk applications, sophisticated EVT methods yield estimates similar to those based on quantiles of the empirical distribution, (ii) estimates from actual data suggest that VaRs at very small con dence levels based on our preferred EVT techniques are larger than those based on empirical quantiles, (iii) the di erences do not remain, however, when we perform Monte Carlos on t-distributed samples, (iv) for the return series here employed, it is clearly important to pre-whiten the data with GARCH models before applying EVT methods

Topics: Key Words, Credit Risk, Extreme Value Theory (EVT, Value at Risk (VaR
Year: 2000
OAI identifier: oai:CiteSeerX.psu:10.1.1.199.2435
Provided by: CiteSeerX
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