Extreme Spectral Risk Measures: An Application to Futures Clearinghouse Margin Requirements

37 Pages Posted: 19 Jun 2007

See all articles by John Cotter

John Cotter

University College Dublin; UCLA Anderson School of Management

Kevin Dowd

Nottingham University Business School (NUBS)

Date Written: 2005

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 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.

Keywords: Spectral risk measures, Expected Shortfall, Value at Risk, Extreme Value

JEL Classification: G15

Suggested Citation

Cotter, John and Dowd, Kevin, Extreme Spectral Risk Measures: An Application to Futures Clearinghouse Margin Requirements (2005). Available at SSRN: https://ssrn.com/abstract=994506 or http://dx.doi.org/10.2139/ssrn.994506

John Cotter (Contact Author)

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
Ireland
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/professorjohncotter/

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Kevin Dowd

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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