Analysis on Risk of Stock Market Via Extreme Value Theory

Abstract

Risk is the perpetual theme in the stock market. Chinese financial market risks have become complicated as Chinese economic globalization further deepens, which makes the measurement tools critical and significant. Extreme distribution usually has been chosen for assessing the stock prices, further the Block Maxima Model (BMM) and the Peak-Over-Threshold (POT) model have been established. In our paper, the Value at risk (VaR) and Expected Shortfall (ES) are calculated via the above two models through daily rate of return from Jun. 1 of 2006 to April 1 of 2018 for Shanghai Stock Exchange index. We compare the two assessing methods for improving the accuracy of risk measurement, which shown that the POT is more stable than the BMM to risk measurement.