Extremal forex returns in extremely large data sets
Exciting information for risk and investment analysis is obtained from an exceptionally large and automatically filtered high frequency data set containing all the forex quote prices on Reuters during a ten-year period. It is shown how the high frequency data improve the efficiency of the tail risk cum loss estimates. We demonstrate theoretically and empirically that the heavy tail feature of foreign exchange rate returns implies that position limits for traders calculated under the industry standard normal model are either not prudent enough, or are overly conservative depending on the time horizon.
|Keywords||extreme value theory, foreign exchange rates, large data sets, position limit, regular variation|
|Persistent URL||dx.doi.org/1013917009089, hdl.handle.net/1765/12387|
Dacorogna, M.M., Muller, U.A., Pictet, O.V., & de Vries, C.G.. (2001). Extremal forex returns in extremely large data sets. Extremes: statistical theory and applications in science, engineering and economics, 105–127. doi:1013917009089