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

Author

Listed:
  • John Cotter

    (University College Dublin, Ireland)

  • Kevin Dowd

    (The University of Nottingham, UK)

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.

Suggested Citation

  • John Cotter & Kevin Dowd, 2011. "Extreme Spectral Risk Measures: An Application to Futures Clearinghouse Margin Requirements," Working Papers 200516, Geary Institute, University College Dublin.
    • Handle: RePEc:ucd:wpaper:2005/16
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Spectral risk measures; Expected Shortfall; Value at Risk; Extreme Value; clearinghouse;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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