We propose a new time-varying peaks over threshold model to study tail risk dynamics in equity markets: the laws of motion for the parameters are defined through the score-based approach. We apply the model to daily returns from U.S. size-sorted decile stock portfolios and show that large firm...

We propose a conditional model of asset returns in the presence of common factors and downside risk. Specifically, we generalize existing latent factor models in three ways: we show how to estimate the threshold which identifies the 'disappointment' event triggering the bad state of the world; we...