Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 399: Modeling extreme events:time-varying extreme tail shape

Bernd Schwaab (), Xin Zhang (), André Lucas () and Enzo D’Innocenzo ()
Additional contact information
Bernd Schwaab: European Central Bank, Postal: Sonnemannstrasse 22, 60314 Frankfurt
Xin Zhang: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
André Lucas: VU University Amsterdam, Postal: De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands
Enzo D’Innocenzo: University of Bologna, Postal: Bologna, Italy

Abstract: We propose a dynamic semi-parametric framework to study time variation in tail parameters. The framework builds on the Generalized Pareto Distribution (GPD) for modeling peaks over thresholds as in Extreme Value Theory, but casts the model in a conditional framework to allow for time-variation in the tail parameters. We establish parameter regions for stationarity and ergodicity and for the existence of (unconditional) moments and consider conditions for consistency and asymptotic normality of the maximum likelihood estimator for the deterministic parameters in the model. Two empirical datasets illustrate the usefulness of the approach: daily U.S. equity returns, and 15-minute euro area sovereign bond yield changes.

Keywords: dynamic tail risk; observation-driven models; extreme value theory; stock return tails; Securities Markets Programme (SMP).

JEL-codes: C22; G11

Language: English

90 pages, First version: December 1, 2020. Revised: June 1, 2023. Earlier revisions: June 1, 2023.

Full text files 

no.-399-modeling-ext...pdated-june-2023.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:rbnkwp:0399This page generated on 2024-09-13 22:16:58.