Modelling Catastrophic Risk in International Equity Markets: An Extreme Value Approach
13 Pages Posted: 10 Jul 2007
Date Written: 2005
This letter uses the Block Maxima Extreme Value approach to quantify catastrophic risk in international equity markets. Risk measures are generated from a set threshold of the distribution of returns that avoids the pitfall of using absolute returns for markets exhibiting diverging levels of risk. From an application to leading markets, the letter finds that the Nikkei is more prone to catastrophic risk than the FTSE and Dow Jones Indexes.
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By John Cotter