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Title: Tail dependence measure for examining financial extreme co-movements Authors:  Vali Asimit - City University London (United Kingdom) [presenting]
Russell Gerrard - Cass Business School (United Kingdom)
Yanxi Hou - Georgia Institute of Technology (United States)
Liang Peng - Georgia State University (United States)
Abstract: Modeling and forecasting extreme co-movements in financial market is important for conducting stress test in risk management. Asymptotic independence and asymptotic dependence behave drastically different in modeling such co-movements. For example, the impact of extreme events is usually overestimated whenever asymptotic dependence is wrongly assumed. On the other hand, the impact is seriously underestimated whenever the data is misspecified as asymptotic independent. Therefore, distinguishing between asymptotic independence/dependence scenarios is very informative for any decision-making and especially in risk management. We investigate the properties of the limiting conditional Kendall's tau which can be used to detect the presence of asymptotic independence/dependence. We also propose non-parametric estimation for this new measure and derive its asymptotic limit. A simulation study shows good performances of the new measure and its combination with a coefficient of tail dependence previously proposed. Finally, applications to financial and insurance data are provided.