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Modelling catastrophic risk in international equity markets: An extreme value approach

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  • john cotter

Abstract

This letter uses the Block Maxima Extreme Value approach to quantify catastrophic risk in international equity markets. Risk measures are generated from a set threshold of the distribution of returns that avoids the pitfall of using absolute returns for markets exhibiting diverging levels of risk. From an application to leading markets, the letter finds that the Nikkei is more prone to catastrophic risk than the FTSE and Dow Jones Indexes.

Suggested Citation

  • john cotter, 2011. "Modelling catastrophic risk in international equity markets: An extreme value approach," Papers 1103.5656, arXiv.org.
  • Handle: RePEc:arx:papers:1103.5656
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    References listed on IDEAS

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    1. John Cotter, 2005. "Tail behaviour of the euro," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 827-840.
    2. John Cotter, 2005. "Extreme risk in futures contracts," Applied Economics Letters, Taylor & Francis Journals, vol. 12(8), pages 489-492.
    3. John Cotter & Donal G. McKillop, 2000. "The Distributional Characteristics of a Selection of Contracts Traded on the London International Financial Futures Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3&4), pages 487-510.
    4. John Cotter, 2004. "Downside risk for European equity markets," Applied Financial Economics, Taylor & Francis Journals, vol. 14(10), pages 707-716.
    5. Hans Dewachter & Geert Gielens, 1999. "Setting futures margins: the extremes approach," Applied Financial Economics, Taylor & Francis Journals, vol. 9(2), pages 173-181.
    6. Longin, Francois M., 2000. "From value at risk to stress testing: The extreme value approach," Journal of Banking & Finance, Elsevier, vol. 24(7), pages 1097-1130, July.
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    More about this item

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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