AN EXTREME VALUE APPROACH IN EXCHANGE RATES MODELLING

  • Ivan MOJSEJ
  • Alena TARTAĽOVÁ

Abstract

This paper proposed an extreme value approach to estimate the exchange rates volatility. We analyzed exchange
rates of USD/EUR. We applied three models, one is the Block Maxima Method based on Fisher-Tippet theorem and the
other is the Peaks over Threshold (POT) Model which models the observed values exceeding a large threshold. The third
model is the classical model based on assumption about normal distribution of exchange rates returns. In the first method is
important to choose the number of blocks which we made by using graphical methods. In the second method is important to
find suitable threshold. The tool is the plot of the sample mean excess function and QQ-plot. The most appropriate model
was found by goodness of fit tests, choosing the highest value of the test. Using these three methods we calculated high
quantiles of exchange rates and compared results.
Published
2013-12-15
How to Cite
MOJSEJ, Ivan ; TARTAĽOVÁ, Alena . AN EXTREME VALUE APPROACH IN EXCHANGE RATES MODELLING. Journal of Advanced Studies in Finance, [S.l.], v. 4, n. 2, p. 99-108, dec. 2013. ISSN 2068-8393. Available at: <https://journals.aserspublishing.eu/jasf/article/view/76>. Date accessed: 23 jan. 2022.
Section
Journal of Advanced Studies in Finance