 How do risk attitudes of clearing firms matter for managing default exposure in futures markets?Jie Cheng, Yi Hong and Juan Tao The European Journal of Finance, 2016, vol. 22, issue 10, 909-940 Abstract: This article proposes a theoretical framework that is built upon extreme value theory to study three instruments (i.e. margin, capital requirement and price limits) for managing default risk in futures markets. Specifically, the exceedances over a price threshold are modeled using a generalized Pareto distribution, and the models are static (one-period). We incorporate the risk attitudes of clearing firms into the framework to investigate the efficacy of these instruments under several risk measures, including value-at-risk measures, expected-shortfall measures and spectral risk measures. An empirical study on the VIX futures (or VX) data shows that the effectiveness of these market instruments rests not only on clearing firms' risk attitudes, but also on the tail fatness of the futures price distribution. Moreover, the shift in the risk attitudes of clearing firms may cause interactions among these instruments, which casts new light on the economic rationale of price limits. Date: 2016 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:22:y:2016:i:10:p:909-940 Ordering information: This journal article can be ordered from DOI: 10.1080/1351847X.2015.1041148 Access Statistics for this article The European Journal of Finance is currently edited by Chris Adcock More articles in The European Journal of Finance from Taylor & Francis Journals |
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