Consider the daily log returns of the GE stock of Exercise

7.1. Obtain estimates _(1) b and _(3) r of the extremal index of

(a) the positive return series and (b) the negative return series, using block

sizes k = 5 and 10 and threshold 2.5%.

Exercise 7.1

Consider the daily returns of GE stock from January 2, 1998,

to December 31, 2008. The data can be obtained from CRSP or the file

d-ge9808.txt. Convert the simple returns into log returns. Suppose that you

hold a long position on the stock valued at $1 million. Use the tail

probability 0.01. Compute the value at risk of your position

»

Consider the daily log returns of the GE stock of Exercise

7.1. Obtain estimates _(1) b and _(3) r of the extremal index of

(a) the positive return series and (b) the negative return series, using block

sizes k = 5 and 10 and threshold 2.5%.

Exercise 7.1

Consider the daily returns of GE stock from January 2, 1998,

to December 31, 2008. The data can be obtained from CRSP or the file

d-ge9808.txt. Convert the simple returns into log returns. Suppose that you

hold a long position on the stock valued at $1 million. Use the tail

probability 0.01. Compute the value at risk of your position for 1-day horizon

and 15-day horizon using the following methods:

(a) The RiskMetrics method.

(b) A Gaussian ARMAGARCH model.

(c) An ARMAGARCH model with a Student-t distribution. You

should also estimate the degrees of freedom.

(d) The traditional extreme value theory with subperiod

length n = 21.

»