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Spectral measures of risk for international futures markets: a comparison of extreme value and Lévy models

Spectral measures of risk for international futures markets: a comparison of extreme value and Lévy models
Spectral measures of risk for international futures markets: a comparison of extreme value and Lévy models

This paper investigates Lévy spectral risk measures (SRM) as a coherent alternative to generalized Pareto spectral risk measures. Specifically, using futures data from major indexes, we consider using SRM for conditional distributions belonging to the generalized hyperbolic family of Lévy processes, and compare and contrast the results with those obtained from the traditional unconditional extreme value approach. Compared with Lévy models, the extreme value model provides poor estimates of quantiles outside the fixed tails, which in turn yield poor estimates of the spectral risk measure itself. The superiority of the Lévy models is increasingly apparent as investors become increasingly risk averse.

Bootstrapping, Generalized hyperbolic distributions, Lévy-Khintchine formula, Spectral risk measures, Value-at-risk
1044-0283
248-261
Mozumder, Sharif
fd0456fe-2db6-4ea2-bdf5-4f7c06761b24
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Dempsey, Michael
ac5479d6-1337-4895-94b5-033420a23af2
Mozumder, Sharif
fd0456fe-2db6-4ea2-bdf5-4f7c06761b24
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Dempsey, Michael
ac5479d6-1337-4895-94b5-033420a23af2

Mozumder, Sharif, Choudhry, Taufiq and Dempsey, Michael (2018) Spectral measures of risk for international futures markets: a comparison of extreme value and Lévy models. Global Finance Journal, 37, 248-261. (doi:10.1016/j.gfj.2018.07.001).

Record type: Article

Abstract

This paper investigates Lévy spectral risk measures (SRM) as a coherent alternative to generalized Pareto spectral risk measures. Specifically, using futures data from major indexes, we consider using SRM for conditional distributions belonging to the generalized hyperbolic family of Lévy processes, and compare and contrast the results with those obtained from the traditional unconditional extreme value approach. Compared with Lévy models, the extreme value model provides poor estimates of quantiles outside the fixed tails, which in turn yield poor estimates of the spectral risk measure itself. The superiority of the Lévy models is increasingly apparent as investors become increasingly risk averse.

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sharif - MozumderDempseyTaufiq_EV_Levy_SRM Final version - Accepted Manuscript
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More information

Accepted/In Press date: 5 July 2018
e-pub ahead of print date: 11 July 2018
Published date: 1 August 2018
Keywords: Bootstrapping, Generalized hyperbolic distributions, Lévy-Khintchine formula, Spectral risk measures, Value-at-risk

Identifiers

Local EPrints ID: 424793
URI: http://eprints.soton.ac.uk/id/eprint/424793
ISSN: 1044-0283
PURE UUID: 179dfb70-ceb8-496e-8c83-93ecc605ae27
ORCID for Taufiq Choudhry: ORCID iD orcid.org/0000-0002-0463-0662

Catalogue record

Date deposited: 05 Oct 2018 11:46
Last modified: 11 Jan 2020 05:01

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