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| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Overnight borrowing, interest rates and extreme value theory |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | European Economic Review |
| Publisher | Elsevier |
| Geographical Reach | international |
| ISSN | 0014-2921 |
| Volume | 50 |
| Number | 3 |
| Page Range | 547 - 563 |
| Date | 2006 |
| Abstract Text | We examine the dynamics of extreme values of overnight borrowing rates in an inter-bankmoney market before a financial crisis during which overnight borrowing rates rocketed up to (simple annual) 4000 percent. It is shown that the generalized Pareto distribution fits well to the extreme values of the interest rate distribution. We also provide predictions of extreme overnight borrowing rates using pre-crisis data. The examination of tails (extreme values) provides answers to such issues as to what are the extreme movements to be expected in financial markets; is there a possibility for even larger movements and, are there theoretical processes that can model the type of fat-tails in the observed data? The answers to such questions are essential for proper management of financial exposures and laying ground for regulations. |
| Digital Object Identifier | 10.1016/j.euroecorev.2004.10.010 |
| Other Identification Number | merlin-id:5973 |
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