A precise estimation of the tail shape of forex returns is of critical importance for proper risk assessment. We improve upon the efficiency of conventional estimators that rely on a first order expansion of the tail shape, by using the second order expansion. Here we advocate a moments estimator for the second term. The paper uses both Monte Carlo simulations and the high frequency foreign exchange recordings collected by the Olsen corporation to illustrate the technique.

Monte Carlo simulations, frequency data, tail index
dx.doi.org/10.1016/S0927-5398(97)00008-X, hdl.handle.net/1765/12405
Journal of Empirical Finance
Erasmus School of Economics

Daníelsson, J, & de Vries, C.G. (1997). Tail index and quantile estimation with very high frequency data. Journal of Empirical Finance, 241–257. doi:10.1016/S0927-5398(97)00008-X