Cotter, JOhn and Dowd, Kevin (2006): Extreme Spectral Risk Measures: An Application to Futures Clearinghouse Margin Requirements. Published in: Journal of Banking and Finance , Vol. 30, (2006): pp. 3469-3485.
Download (851Kb) | Preview
This paper applies the Extreme-Value (EV) Generalised Pareto distribution to the extreme tails of the return distributions for the S&P500, FT100, DAX, Hang Seng, and Nikkei225 futures contracts. It then uses tail estimators from these contracts to estimate spectral risk measures, which are coherent risk measures that reflect a user’s risk-aversion function. It compares these to more familiar VaR and Expected Shortfall (ES) measures of risk, and also compares the precision and discusses the relative usefulness of each of these risk measures.
|Item Type:||MPRA Paper|
|Original Title:||Extreme Spectral Risk Measures: An Application to Futures Clearinghouse Margin Requirements|
|Subjects:||G - Financial Economics > G0 - General > G00 - General
G - Financial Economics > G0 - General
|Depositing User:||John Cotter|
|Date Deposited:||13. Jun 2007|
|Last Modified:||21. Feb 2013 15:56|
REFERENCES Acerbi, C., Tasche, D., 2001. Expected shortfall: a natural alternative to value at risk. Economic Notes 31: 379-388. Acerbi, C., 2002. Spectral measures of risk: a coherent representation of subjective risk aversion. Journal of Banking and Finance 26: 1505-1518. Acerbi, C., 2004. Coherent representations of subjective risk-aversion, in G. Szego (Ed), Risk Measures for the 21st Century, Wiley, New York, pp. 147-207. Artzner, P., F. Delbaen, J.-M. Eber, D. Heath. 1999. Coherent measures of risk. Mathematical Finance 9, 203-228. Balkema, A. A., de Haan, L., 1974. Residual lifetime at great age. Annals of Probability 2, 792–804. Bawa, V. S., 1975. Optimal rules for ordering uncertain prospects. Journal of Financial Economics 2: 95-121. Booth, G. G., Brousssard, J.P., Martikainen, T., Puttonen, V., 1997. Prudent margin levels in the Finnish stock index futures market. Management Science 43, 1177-1188. Broussard, J. P. 2001. Extreme-value and margin setting with and without price limits, Quarterly Review of Economics and Finance, 41, 365-385. 23 Cotter, J. 2001. Margin exceedences for European stock index futures using extreme value theory. Journal of Banking and Finance 25, 1475-1502. Edwards, F. R., Neftci, S. N., 1988. Extreme price movements and margin levels in futures markets. Journal of Futures Markets 8, 639-655. Embrechts, P., Kluppelberg C., Mikosch, T., 1997. Modelling Extremal Events for Insurance and Finance. Springer Verlag, Berlin. Figlewski, S. 1984. Margins and market integrity: margin setting for stock index futures and options. The Journal of Futures Markets, 4, 385–416. Fishburn, P. C. 1977 Mean-risk analysis with risk associated with below-target returns. American Economic Review 67: 116-126. Giannopoulos, K. Tunaru, R., 2004. Coherent risk measures under filtered historical simulation. Journal of Banking and Finance, Forthcoming. Grootveld, H., Hallerbach, W. G., 2004. Upgrading value-at-risk from diagnostic metric to decision variable: a wise thing to do?, in G. Szegö (Ed.) Risk Measures for the 21st Century. Wiley, New York, pp. 33-50. Kusuoka, S., 2001. On law invariant coherent risk measures. Advances in Mathematical Economics 3: 83-95. Longin, F., 1999. Optimal margin levels in futures markets: extreme price movements. Journal of Futures Markets, 19, 127-152. Longin, F., 2000. From value at risk to stress testing: The extreme value approach. Journal of Banking and Finance, 24, 1097-1130. Loretan, M., Phillips, P. C. B., 1994. Testing the covariance stationarity of heavytailed time series. Journal of Empirical Finance, 1, 211-248. Miranda, M. J., Fackler, P. L., 2002. Applied Computational Economics and Finance. MIT Press, Cambridge MA and London. Warshawsky, M. J. 1989. The adequacy and consistency of margin requirements: the cash, futures and options segments of the equity markets. The Review of Futures Markets 8, 420–437.