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

John Cotter and Kevin Dowd

Centre for Financial Markets Working Papers from Research Repository, University College Dublin

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.

Keywords: Spectral risk measures; Expected shortfall; Value at risk; Extreme value; Clearinghouse; Clearinghouses (Banking); Extreme value theory; Risk--Econometric models (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Date: 2005-12
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http://hdl.handle.net/10197/1169 First version, 2005 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:rru:cfmwps:10197/1169

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