Extreme risk in futures contracts

John Cotter

Applied Economics Letters, 2005, vol. 12, issue 8, 489-492

Abstract: This article uses Extreme Value Theory (EVT) to measure extreme risk in futures contracts with diverging underlying assets. The approach provides a framework for analysing the distributional properties of extreme returns. EVT is statistically robust at estimating Value at Risk (VaR) for different asset classes and at very low probabilities. By way of contrast, the estimation bias by relying on the thin-tailed normal distribution for measuring extreme price movements is illustrated. Back-tests confirm the relative accuracy of the approaches.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:12:y:2005:i:8:p:489-492

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DOI: 10.1080/13504850500109816

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