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Modelling Catastrophic Risk in International Equity Markets: An Extreme Value Approach

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  • John Cotter

    (University College Dublin, Ireland)

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," Working Papers 200515, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:2005/15
    as

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    File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200515.pdf
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    References listed on IDEAS

    as
    1. John Cotter, 2005. "Extreme risk in futures contracts," Applied Economics Letters, Taylor & Francis Journals, vol. 12(8), pages 489-492.
    2. John Cotter, 2005. "Tail behaviour of the euro," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 827-840.
    3. 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.
    4. 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.
    5. John Cotter, 2004. "Downside risk for European equity markets," Applied Financial Economics, Taylor & Francis Journals, vol. 14(10), pages 707-716.
    6. Hans Dewachter & Geert Gielens, 1999. "Setting futures margins: the extremes approach," Applied Financial Economics, Taylor & Francis Journals, vol. 9(2), pages 173-181.
    Full references (including those not matched with items on IDEAS)

    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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