Now showing 1 - 10 of 18
  • Publication
    Extreme spectral risk measures : an application to futures clearinghouse margin requirements
    (University College Dublin. School of Business. Centre for Financial Markets, 2005-12-14) ;
    This paper applies the Extreme-Value (EV) Generalised Pareto distribution to the extreme tails of the return distributions for the S&P500, FT100, DAX, Hang Seng, and Nikkei225 futures contracts. It then uses tail estimators from these contracts to estimate spectral risk measures, which are coherent risk measures that reflect a user’s risk-aversion function. It compares these to VaR and Expected Shortfall (ES) risk measures, and compares the precision of their estimators. It also discusses the usefulness of these risk measures in the context of clearinghouses setting initial margin requirements, and compares these to the SPAN measures typically used.
      337
  • Publication
    Spectral risk measures : properties and limitations
    (University College Dublin. School of Business. Centre for Financial Markets, 2008-04-18) ; ;
    Spectral risk measures (SRMs) are risk measures that take account of user risk aversion, but to date there has been little guidance on the choice of utility function underlying them. This paper addresses this issue by examining alternative approaches based on exponential and power utility functions. A number of problems are identified with both types of spectral risk measure. The general lesson is that users of spectral risk measures must be careful to select utility functions that fit the features of the particular problems they are dealing with, and should be especially careful when using power SRMs.
      395
  • Publication
    U.S. core inflation : a wavelet analysis
    (Cambridge Journals, 2010-06) ; ;
    This paper proposes the use of wavelet methods to estimate U.S. core inflation. It explains wavelet methods and suggests they are ideally suited to this task. Comparisons are made with traditional CPI-based and regression-based measures for their performance in following trend inflation and predicting future inflation. Results suggest that wavelet-based measures perform better, and sometimes much better, than the traditional approaches. These results suggest that wavelet methods are a promising avenue for future research on core inflation.
    Scopus© Citations 9  718
  • Publication
    Extreme global equity market risk
    (Palgrave Macmillan, 2011-11) ;
    Extreme asset price movements appear to be more pronounced over time and have major consequences for an economy’s financial stability and monetary policies. This article investigates the extreme behaviour of equity market returns and quantifies the probabilities of these losses. Taking 14 major equity markets, the study illustrates similarities and divergences in the tail returns from around the world. To do so, it applies extreme value theory to equity indexes representing American, Asian and European markets. The article finds that all markets tail realisations are adequately modelled with the fat-tailed Fréchet distribution. Furthermore, tail realisations associated with the downside of a distribution are greater than those associated with the upside, and extreme returns for Asian markets are usually larger than their European and American counterparts.
      365
  • Publication
    Spectral risk measures and the choice of risk aversion functior
    (University College Dublin. School of Business. Centre for Financial Markets, 2007-03-11) ;
    Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their risk-aversion functions. To date there has been very little guidance on the choice of risk-aversion functions underlying spectral risk measures. This paper addresses this issue by examining two popular risk aversion functions, based on exponential and power utility functions respectively. We find that the former yields spectral risk measures with nice intuitiveproperties, but the latter yields spectral risk measures that can have perverse properties. More work therefore needs to be done before we can be sure that arbitrary but respectable utility functions will always yield ‘well-behaved’ spectral risk measures.
      202
  • Publication
    U.S. core inflation : a wavelet analysis
    (University College Dublin. School of Business. Centre for Financial Markets, 2006-09-10) ;
    This paper proposes the use of wavelet methods to estimate U.S. core inflation. It explains wavelet methods and suggests they are ideally suited to this task. Comparisons are made with traditional CPI-based and regression-based measures for their performance in following trend inflation and predicting future inflation. Results suggest that wavelet-based measures perform better, and sometimes much better, than the Traditional approaches. These results suggest that wavelet methods are a promising avenue for future research on core inflation.
      341
  • Publication
    Intra-day seasonality in foreign exchange market transactions
    (Elsevier, 2010-04) ;
    This paper examines the intra-day seasonality of transacted limit and market orders in the DEM/USD foreign exchange market. Empirical analysis of completed transactions data based on the Dealing 2000-2 electronic inter-dealer broking system indicates significant evidence of intraday seasonality in returns and return volatilities under usual market conditions. Moreover, analysis of realised tail outcomes supports seasonality for extraordinary market conditions across the trading day.
    Scopus© Citations 4  509
  • Publication
    How unlucky is 25-Sigma?
    (Euromoney Institutional Investor, 2008) ; ; ;
    This article examines the likelihood of high-sigma loss events, paying particular attention to the so-called 25-sigma events which a number of financial institutions have allegedly experienced in the recent financial turmoil. The authors discuss several well-known cases and their media coverage, and then examine the probabilities of such events and the periods of time that would elapse before one would expect to witness them. They find that 25-sigma events are far less likely to occur than recent discussions would suggest--so much so, in fact, that they are literally incredible.
    Scopus© Citations 20  1048
  • Publication
    Evaluating the precision of estimators of quantile-based risk measures
    (University College Dublin. School of Business. Centre for Financial Markets, 2007-05) ;
    This paper examines the precision of estimators of Quantile-Based Risk Measures (Value at Risk, Expected Shortfall, Spectral Risk Measures). It first addresses the question of how to estimate the precision of these estimators, and proposes a Monte Carlo method that is free of some of the limitations of existing approaches. It then investigates the distribution of risk estimators, and presents simulation results suggesting that the common practice of relying on asymptotic normality results might be unreliable with the sample sizes commonly available to them. Finally, it investigates the relationship between the precision of different risk estimators and the distribution of underlying losses (or returns), and yields a number of useful conclusions.
      269
  • Publication
    Intra-day seasonality in foreign exchange market transactions
    (University College Dublin. School of Business. Centre for Financial Markets, 2007-05-18) ;
    This paper examines the intra-day seasonality of transacted limit and market orders in the DEM/USD foreign exchange market. Empirical analysis of completed transactions data based on the Dealing 2000-2 electronic inter-dealer broking system indicates significant evidence of intraday seasonality in returns and return volatilities under usual market conditions. Moreover, analysis of realised tail outcomes supports seasonality for extraordinary market conditions across the trading day.
      276