Arbeitspapier

lCARE: localizing conditional autoregressive expectiles

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We account for time-varying parameters in the conditional expectile based value at risk (EVaR) model. EVaR appears more sensitive to the magnitude of portfolio losses compared to the quantile-based Value at Risk (QVaR), nevertheless, by fitting the models over relatively long ad-hoc fixed time intervals, research ignores the potential time-varying parameter properties. Our work focuses on this issue by exploiting the local parametric approach in quantifying tail risk dynamics. By achieving a balance between parameter variability and modelling bias, one can safely fit a parametric expectile model over a stable interval of homogeneity. Empirical evidence at three stock markets from 2005- 2014 shows that the parameter homogeneity interval lengths account for approximately 1-6 months of daily observations. Our method outperforms models with one-year fixed intervals, as well as quantile based candidates while employing a time invariant portfolio protection (TIPP) strategy for the DAX portfolio. The tail risk measure implied by our model finally provides valuable insights for asset allocation and portfolio insurance.

Language: Englisch

Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2015-052

Classification: Wirtschaft
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Model Construction and Estimation
Financial Forecasting and Simulation

Subject: expectiles
tail risk
local parametric approach
risk management

Event: Geistige Schöpfung

(who): Xu, Xiu
Mihoci, Andrija
Härdle, Wolfgang Karl

Event: Veröffentlichung

(who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk

(where): Berlin

(when): 2015

Handle: http://hdl.handle.net/10419/146167

Last update: 10.03.2025, 11:43 AM CET

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Object type

Arbeitspapier

Associated

Xu, Xiu
Mihoci, Andrija
Härdle, Wolfgang Karl
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk

Time of origin

2015

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