Modeling tail-dependence of crypto assets with Extreme Value Theory – Perspectives of Risk Management in Banks
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216224%3A14220%2F22%3A00127831" target="_blank" >RIV/00216224:14220/22:00127831 - isvavai.cz</a>
Result on the web
<a href="https://virtusinterpress.org/Modeling-tail-dependence-of-crypto-assets-with-extreme-value-theory-Perspectives-of-risk-management-in-banks.html" target="_blank" >https://virtusinterpress.org/Modeling-tail-dependence-of-crypto-assets-with-extreme-value-theory-Perspectives-of-risk-management-in-banks.html</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.22495/rgcv12i4p5" target="_blank" >10.22495/rgcv12i4p5</a>
Alternative languages
Result language
angličtina
Original language name
Modeling tail-dependence of crypto assets with Extreme Value Theory – Perspectives of Risk Management in Banks
Original language description
Cryptocurrencies show some properties that differ from typical financial instruments. For example, dynamic volatility, larger price jumps, and other market participants and their associated characteristics can be observed (Pardalos, Kotsireas, Guo, & Knottenbelt, 2020). Especially high tail risk (Sun, Dedahanov, Shin, & Li, 2021; Corbet, Meegan, Larkin, Lucey, & Yarovaya, 2018; Borri, 2019) leads to the question of whether the methods and procedures established in risk management are suitable for measuring the resulting market risks of cryptos appropriately. Therefore, we examine the risk measurement of Bitcoin, Ethereum, and Litecoin. In addition to the classic methods of market risk measurement, historical simulation, and the variance-covariance approach, we also use the extreme value theory to measure risk. Only the extreme value theory with the peaks-over-threshold method delivers satisfactory backtesting results at a confidence level of 99.9%. In the context of our analysis, the highly volatile market phase from January 2021 was crucial. In this, extreme deflections that have never been observed before in the time series have significantly influenced backtesting. Our paper underlines that critical market phases could not be sufficiently observed from the short time series, leading to adequate backtesting results under the standard market risk measurement. At the same time, the strength of the extreme value theory comes into play here and generates a preferable risk measurement.
Czech name
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Czech description
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Classification
Type
J<sub>ost</sub> - Miscellaneous article in a specialist periodical
CEP classification
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OECD FORD branch
50206 - Finance
Result continuities
Project
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Continuities
I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace
Others
Publication year
2022
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Risk Governance and Control: Financial Markets and Institutions
ISSN
2077-429X
e-ISSN
2077-4303
Volume of the periodical
12
Issue of the periodical within the volume
4
Country of publishing house
UA - UKRAINE
Number of pages
11
Pages from-to
67-77
UT code for WoS article
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EID of the result in the Scopus database
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