Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/307429 
Year of Publication: 
2024
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2024-069/III
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
We propose a robust semi-parametric framework for persistent time-varying extreme tail behavior, including extreme Value-at-Risk (VaR) and Expected Shortfall (ES). The framework builds on Extreme Value Theory and uses a conditional version of the Generalized Pareto Distribution (GPD) for peaks-over-threshold (POT) dynamics. Unlike earlier approaches, our model (i) has unit root-like, i.e., integrated autoregressive dynamics for the GPD tail shape, and (ii) re-scales POTs by their thresholds to obtain a more parsimonious model with only one time-varying parameter to describe the entire tail. We establish parameter regions for stationarity, ergodicity, and invertibility for the integrated time-varying parameter model and its filter, and formulate conditions for consistency and asymptotic normality of the maximum likelihood estimator. Using four exchange rate series, we illustrate how the new model captures the dynamics of extreme VaR and ES.
Document Type: 
Working Paper

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