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Abnormal returns, risk, and options in large data sets

Author

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  • S. Caserta
  • J. DanÃÂÃÂelsson
  • C. G. De Vries

Abstract

Large data sets in finance with millions of observations have become widely available. Such data sets enable the construction of reliable semi‐parametric estimates of the risk associated with extreme price movements. Our approach is based on semi‐parametric statistical extreme value analysis, and compares favorably with the conventional finance normal distribution based approach. It is shown that the efficiency of the estimator of the extreme returns may benefit from high frequency data. Empirical tail shapes are calculated for the German Mark—US Dollar foreign exchange rate, and we use the semi‐parametric tail estimates in combination with the empirical distribution function to evaluate the returns on exotic options.

Suggested Citation

  • S. Caserta & J. DanÃÂÃÂelsson & C. G. De Vries, 1998. "Abnormal returns, risk, and options in large data sets," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 52(3), pages 324-335, November.
    • Handle: RePEc:bla:stanee:v:52:y:1998:i:3:p:324-335
    DOI: 10.1111/1467-9574.00087
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    Cited by:

    1. Hans Byström, 2003. "Estimating Default Probabilities Using Stock Prices: The Swedish Banking Sector During the 1990s Banking Crisis," Research Paper Series 92, Quantitative Finance Research Centre, University of Technology, Sydney.

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