New method accurately predicts extreme financial risks, outperforming traditional techniques.
Accurately predicting extreme events is crucial in finance, like Value-at-Risk analysis. A new method combines parametric and non-parametric models to evaluate VaR. When compared to other techniques on stock returns, this method gives more accurate predictions of low probability worst outcomes. Using this method can help lower downside risk in a portfolio. The current regulatory environment encourages using the most accurate VaR method available.