Explain distribution of maxima & minima-Extreme Value Theory
Illustrates an example of distribution of maxima and minima in Extreme Value Theory?
Expert
One significant EVT result concerns the distribution of maxima and minima and is used in computations as in the example given.
If Xi are independent, evenly distributed random variables and x = max(X1, X2, ... , Xn) therefore the distribution of x converges to
(1/σ) (1 + ξ (ξ(x -µ)/ σ))(-1/ ξ)-1 exp(-(1 + ξ(x - µ)/ σ))(-1/ ξ))
While ξ = 0 it is a Gumbel distribution, ξ< 0 that is Weibull and ξ >0 that is Frechet. Here Frechet is the one of interest in finance because this is related with fat tails. The role of theorems regarding extremes is similar to which of the Central Limit Theorem for sums/averages.
Your firm have just issued five year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4%. Describe the amount of first coupon payment your firm will pay per U.S. $1,000 of face value, if six-month LIBOR is at present 7.2%?Solution:
Normal 0 false false
At the beginning of the year of 1996, the yearly interest rate was 6 percent in the United States and 2.8 percent in Japan. At the time the exchange rate was 95 yen per dollar. Mr. Jorus, the manager of a Bermuda-based hedge fund, thought that the substantial
Explain the formula of hedging contract.
What kinds of U.S. companies would benefit most from a stronger dollar in the foreign exchange market?
Illustrates an example of Efficient Markets Hypothesis?
What is interest-rate model?
Illustrates the term serial autocorrelation?
18,76,764
1932460 Asked
3,689
Active Tutors
1430889
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!