Stochastic Volatilities and Correlations, Extreme Values and Modeling the Macroeconomic Environment, Under Which Brazilian Banks Operate /

Using monthly data for a set of variables, we examine the out-of-sample performance of various variance/covariance models and find that no model has consistently outperformed the others. We also show that it is possible to increase the probability mass toward the tails and to match reasonably well t...

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Bibliographic Details
Main Author: Souto, Marcos
Other Authors: Barnhill, Theodore
Format: Journal
Language:English
Published: Washington, D.C. : International Monetary Fund, 2007.
Series:IMF Working Papers; Working Paper ; No. 2007/290
Online Access:Full text available on IMF
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245 1 0 |a Stochastic Volatilities and Correlations, Extreme Values and Modeling the Macroeconomic Environment, Under Which Brazilian Banks Operate /  |c Marcos Souto, Theodore Barnhill. 
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500 |a <strong>Off-Campus Access:</strong> No User ID or Password Required 
500 |a <strong>On-Campus Access:</strong> No User ID or Password Required 
506 |a Electronic access restricted to authorized BRAC University faculty, staff and students 
520 3 |a Using monthly data for a set of variables, we examine the out-of-sample performance of various variance/covariance models and find that no model has consistently outperformed the others. We also show that it is possible to increase the probability mass toward the tails and to match reasonably well the historical evolution of volatilities by changing a decay factor appropriately. Finally, we implement a simple stochastic volatility model and simulate the credit transition matrix for two large Brazilian banks and show that this methodology has the potential to improve simulated transition probabilities as compared to the constant volatility case. In particular, it can shift CTM probabilities towards lower credit risk categories. 
538 |a Mode of access: Internet 
700 1 |a Barnhill, Theodore. 
830 0 |a IMF Working Papers; Working Paper ;  |v No. 2007/290 
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