Please use this identifier to cite or link to this item: http://hdl.handle.net/11422/9478
Type: Relatório
Title: Maximum drawdown: models and applications
Author(s)/Inventor(s): Mendes, Beatriz Vaz de Melo
Leal, Ricardo Pereira Câmara
Abstract: Indisponível.
Abstract: Financial series may possess fractal dimensions which would induce cycles of many different durations. This inherent characteristic would explain the turbulent cascades in stock markets when strong local dependence is observed. A drawdown is defined as the percentual accumulated loss due to a sequence of drops in the price of an investment. It is collected over non-fixed time intervals and its duration is also a random variable. The maximum drawdown occuring during a fixed investment horizon is a flexible measure that may provide a different perception of the risk and price flow of an investment. In this paper we propose statistical models from the extreme value theory for the severity and duration of the maximum drawdown. Our empirical results indicate that there may exist a relation between the pattern of the GARCH volatility of an investment and the fluctuations of the severity of the maximum drawdown and that, typically, extreme (but not outlying) maximum drawdowns occur during stress periods of high volatility. We suggest applications for the maximum drawdown, including the computation of the Maximum Drawdown-at-Risk with exceedance probability α, and the classification of investments according to their performance when controlling losses via the maximum drawdown.
Keywords: Finanças
Working paper
Subject CNPq: CNPQ::CIENCIAS SOCIAIS APLICADAS::ADMINISTRACAO
Department : Instituto COPPEAD de Administração
Publisher: Universidade Federal do Rio de Janeiro
In: Relatórios COPPEAD
Issue: 359
Issue Date: 2003
Publisher country: Brasil
Language: eng
Right access: Acesso Aberto
ISBN: 8575080423
ISSN: 1518-3335
Citation: MENDES, Beatriz Vaz de Melo; LEAL, Ricardo Pereira Câmara. Maximum drawdown: models and applications. Rio de Janeiro: UFRJ, 2003. (Relatórios COPPEAD, 359)
Appears in Collections:Relatórios Técnicos e de Pesquisa

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