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Extreme spectral risk measures : an application to futures clearinghouse margin requirements

By John Cotter and Kevin Dowd

Abstract

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 VaR and Expected Shortfall (ES) risk measures, and compares the precision of their estimators. It also discusses the usefulness of these risk measures in the context of clearinghouses setting initial margin requirements, and compares these to the SPAN measures typically used

Topics: Spectral risk measures, Expected shortfall, Value at risk, Extreme value, Clearinghouse, Clearinghouses (Banking), Extreme value theory, Risk--Econometric models, info:eu-repo/classification/jel/G15
Publisher: University College Dublin. School of Business. Centre for Financial Markets
Year: 2005
OAI identifier: oai:researchrepository.ucd.ie:10197/1169
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