Title :
Measure Exchange Rate Risk Using GARCH Model and Extreme Value Theory
Author :
Yang, Jie ; Zhang, Shaozong
Author_Institution :
Sch. of Econ. & Manage., Yunnan Normal Univ., Kunming, China
Abstract :
Risk measurement is an important prerequisite in modern finance. This paper aims to measure exchange rate risk of Chinese exchange market. We firstly examine the heteroscedasticity of the return series of USD/CNY and EUR/CNY data, the results suggest that there is obvious heteroscedasticity. Secondly, we choose the best GARCH model to filter the return series to i.i.d residual series and employ extreme value theory to estimate the tails of those i.i.d series, we find the degree of fitting of GPD is very high. Finally, we calculate corresponding VaR estimates, which can help investor to measure exchange risk accurately.
Keywords :
autoregressive processes; exchange rates; risk analysis; stock markets; Chinese exchange market; EUR/CNY data; GARCH model; USD/CNY data; exchange rate risk measurement; extreme value theory; generalized autoregressive conditional heteroscedasticity; return series; Biological system modeling; Data models; Distribution functions; Estimation; Exchange rates; Mathematical model; Stochastic processes; EVT; Foreign Exchange rate; GARCH; Risk Measurement; VaR;
Conference_Titel :
Business Intelligence and Financial Engineering (BIFE), 2010 Third International Conference on
Conference_Location :
Hong Kong
Print_ISBN :
978-1-4244-7575-9
DOI :
10.1109/BIFE.2010.89
