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Spectral Risk Measures with an Application to Futures Clearinghouse Variation Margin Requirements

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Author Info
Cotter, John
Dowd, Kevin

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Abstract

This paper applies an AR(1)-GARCH (1, 1) process to detail the conditional distributions of the return distributions for the S&P500, FT100, DAX, Hang Seng, and Nikkei225 futures contracts. It then uses the conditional distribution for these contracts to estimate spectral risk measures, which are coherent risk measures that reflect a user’s risk-aversion function. It compares these to more familiar VaR and Expected Shortfall (ES) measures of risk, and also compares the precision and discusses the relative usefulness of each of these risk measures in setting variation margins that incorporate time-varying market conditions. The goodness of fit of the model is confirmed by a variety of backtests.

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File URL: http://mpra.ub.uni-muenchen.de/3495/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3495.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:3495

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Find related papers by JEL classification:
G1 - Financial Economics - - General Financial Markets
G0 - Financial Economics - - General

References listed on IDEAS
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  1. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  2. Giannopoulos, Kostas & Tunaru, Radu, 2005. "Coherent risk measures under filtered historical simulation," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 979-996, April. [Downloadable!] (restricted)
  3. Cotter, John, 2000. "Margin Exceedences for European Stock Index Futures using Extreme Value Theory," MPRA Paper 3534, University Library of Munich, Germany, revised 2001. [Downloadable!]
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  4. Theodore E. Day, 2004. "Margin Adequacy and Standards: An Analysis of the Crude Oil Futures Market," Journal of Business, University of Chicago Press, vol. 77(1), pages 101-136, January. [Downloadable!]
  5. Cotter, John, 2004. "Varying the VaR for Unconditional and Conditional Environments," MPRA Paper 3483, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2008-11-17.

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